Hef's Bid to Take Playboy Private: Smoke and Mirrors?

Don't be fooled by Hugh Hefner's mellow demeanor and smoking jacket. The Playboy founder, who's 84, showed there's spark left in his pipe by announcing an offer today to buy up any shares he doesn't already own in a surprise bid to take the adult entertainment private. He may have foreshadowed the move in a veiled tweet on Friday.

In his proposal to Playboy Enterprise Inc.'s board, Hefner stated that, out of respect for the brand and the editorial direction of the magazine, he is not interested in any sale or merger of Playboy to other bidders, or in selling his shares.

Shortly after his proposal—which is not yet a formal offer—was made public, Penthouse owner FriendFinder Networks said it would make a formal bid for its longtime rival, prompting shares to soar as investors scrambled to respond. RBC analyst David Bank told Bloomberg TV he believes Hefner's move was motivated by a belief the brand is  undervalued on Wall Street.

"It's yet another demonstration of the power of content in media," Bank commented. "A lot of people associate Playboy with the adult entertainment business, but (it's) an incredibly underleveraged brand."

The analyst also mentioned the brand's international licensing deals, with its name and logo "on everything from energy drinks to casinos," which may also explain why it's losing money: overlicensing. Brandchannel's Abe Sauer accused Playboy of being in "a race to the bottom" earlier this year, after Hefner was sued by Playboy shareholders in February.

Hefner may have given a hint of where he sees the brand's growth in a recent Q&A in the New York Times. "To begin with, it was the magazine that carried the brand; now the brand carries the magazine," he said. "We have merchandise that we sell all over, like clothing. We’re one of the main men’s upscale brands on the mainland of Red China, where the magazine is not yet permitted."

Playboy recently implemented layoffs and eliminated its corporate controller position. Now Hefner, who made his offer with the backing of a private equity firm, is concerned about the future of the company he founded in 1953. His daughter Christie stepped down as CEO last year after more than 20 years on the job.

The Wall Street Journal speculates that Hef may be "trying to smoke out another bidder." Marketwatch's Jon Friedman muses that Hefner's action is indicative of persistent tough times for media brands, not to mention the wear and tear on Hef's personal brand:

"Playboy's identity stems from its magazine, featuring scantily clad women, pithy lifestyle features and long interviews with celebrities. Building on those components, Hefner also brilliantly marketed himself as America's timeless swinger. But he is now 84 years old, and his image has taken a hit as he has gone from the grand old man of publishing to something less flattering.

Hefner has always had an impeccable sense of timing. He proved it by capitalizing on America's post-World War II's attitudes toward sexual content. Perhaps, once again, he will lead media companies — this time down the path of going private."

As Marketwatch notes, in 2006 the company's revenue stood at $331 million, down from $347 million in 1999. By last year, the figure had dropped to $240 million. The flagship magazine's circulation peaked at 7.1 million in late 1972. By last year, it was down to 2.6 million; in October, Playboy reduced its rate base to 1.5 million print subscribers, where it stands now.

Having also expressed interest in saving the Hollywood sign in addition to (now) his flagship business, Hefner's clearly thinking about his personal legacy. (As he quipped at the Iron Man 2 premiere above, the one super-power he'd love is immortality.)

Indeed, he tweeted two days ago: "In the bio-pic of my life, I think Robert Downey Jr would be a natural & has expressed interest. Chaplin, Iron Man & Hef. cool."