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Is storied publisher Time a deal target for National Enquirer owner?

Inquiring minds want to know if the National Enquirer's parent company will buy iconic magazine publisher Time Inc. (TIME)

According to a recent New Yorker story, American Media Inc. is interested in acquiring Time, whose titles include People, Fortune and Sports Illustrated. Combining the tabloid owner, which along with the Enquirer also publishes The Star and Radar Online, with some of the magazine world's most venerable names "has gone from preposterous to more than possible." The deal would allow the expanded company to cut costs through efficiencies gained by merging their respective printing operations.

Yet some observers are skeptical a deal is in the works. Doug Arthur, an analyst with Huber Research, said Time has already cut costs to the bone, including by consolidating its printing across multiple publications. "It doesn't make a lot of sense. There is not that much logic to it," said Huber, who rates Time's stock as a "sell."

AMI and Time have both long struggled to transition their businesses from print to digital. According to a regulatory filing, revenue at privately-held American Media slumped 34 percent from fiscal years 2012 to 2016, to $223 million. The publisher also reported net losses in three out of the past five years. To drive advertising growth, AMI has in recent months bought titles such as US Weekly and Men's Journal from Rolling Stone owner Jann Wenner.

If AMI were to bid for Time, it would need to find an outside investor, along with buyers for the magazine publisher's assets it deemed surplus to requirements, according to a person familiar with the company. According to the New York Post, AMI isn't trying to raise money for a new bid for Time Inc.  

A spokesman for AMI declined to comment.

Time has fared better than AMI. Its revenue has stayed fairly stable during the four calendar years ending in 2016, where it reported annual sales of $3.08 billion. The company last year reportedly rejected a $1.8 billion offer from an investor group, including former Warner Music Group head Edgar Bronfman Jr., arguing that the $18 per share offer was too low. 

In April, Time ended its talks with potential suitors, including rival magazine owner Meredith (MDP) and private equity firm Pamplona Capital Management. The company decided to go it alone, arguing that it could continue to grow its digital audience. Time CEO Richard Battista has said he expects the company to reach $1 billion in online revenue, though he has not said when he expects to reach that milestone. 

"Further industry consolidation is likely given the secular declines in print, and advertisers wanting to work with fewer and larger partners," a Time spokesperson said Friday in a statement. 

Wall Street is less optimistic about Time's prospects. The company's stock price has slumped more than 20 percent this year. During the company's most recent earnings conference call, billionaire Leon Cooperman, an investor in both Time and American Media, pressed for details on Time's strategic plan, noting that 'I'm pretty confident that this company could be sold today at, at least, $18 a share."

Arthur, the analyst, sees things differently.

"I think the stock is overvalued here," he said, adding that the gains Time has made on the digital front haven't been enough to offset the "vicious declines in print."

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