Penthouse has Offered to Purchase Playboy

In an unexpected move that could reshape the legacy of America's most virile octogenarian publishing mogul, Hefner on Monday made a bid to take Playboy Enterprises private. He offered to buy up the Playboy stock he does not already own for a sizable premium, causing the company's share price to spike more than 40 percent to its highest level in two years.

Hefner's offer of $5.50 a share was as mysterious as it was surprising. Playboy's board did not learn of it until Monday morning, a company spokeswoman said. And with recent efforts to turn around the troubled company showing signs of success, the timing struck some as peculiar.

Analysts were left guessing about Hefner's motives. Was he making a deft power play for an undervalued asset? Was he trying to wrest the company he founded more than a half century ago from a new management regime that he thinks is steering his legacy astray?

"It's almost a surreal development," said David Bank, a media analyst with RBC Capital Markets. "The simplest explanation is that the company is worth a lot more than it's trading for, and that Hef can see that; we can't."

"If I sold it, my life would be over." - Hugh Hefner

Pummeled by the exodus of readers and advertisers to the Internet, Playboy has limped its way through a drastic overhaul in recent years. While the company is still losing money; it posted a loss of $1 million for the first quarter; it has improved its financial condition and shed costs. It has eliminated jobs, closed its New York office, outsourced all noneditorial functions to American Media and sought business partnerships for use of its signature bunny ears logo on clothing and accessories.

The company's board also brought in a new chief executive last year, replacing Hefner's daughter, Christine, with Scott Flanders, an outsider to Playboy's tradition-bound culture.

Some analysts wondered whether Hefner, 84, who now has less of a say in the management of the company, was longing for the days when he exercised more control. But with Playboy showing signs of improvement, why Hefner suddenly saw a need to shift course was a mystery.

"Playboy's latest reincarnation is in its infancy," said Mark A. Boyar, president of Boyar Asset Management, an investment firm that owns about 1 percent of Playboy's stock. "Why allow Hugh Hefner back in the fold again when you have a new management team that's doing all the right things?"

Hefner's move seemed, in one sense, to undermine Flanders.

Playboy remains a powerful brand. Indeed, Hefner's offer sparked interest from at least one other would-be buyer Monday. FriendFinder Networks, owner of Penthouse magazine, said it was interested in making a bid for Playboy.

But Hefner has said he is uninterested in selling to a third party. Hefner owns 69.5 percent of Playboy's common stock. To finance a purchase of the remaining shares, he has partnered with Rizvi Traverse Management, a private equity firm.