Earnings condensed at Reader's Digest


Published: Monday, January 29, 2007 at 6:01 a.m.
Last Modified: Monday, January 29, 2007 at 12:23 a.m.
Dear Mr. Berko: In June 2001, I bought 300 shares of Reader's Digest at $29 and it's never been back there since. I still have the stock and was really mad that this Ripplewood group is buying the company at $17 a share, which gives me a loss of $12 a share, or $3,600.
I really believed that, given another two or three years, Reader's Digest would move back to $29 or higher and that I could get my investment back.
I am so angry that I probably won't give them my shares when they make the request.
This is a good company and they published excellent reading resources for teachers, students, teenagers, parents and retirees. Their many publications are well-written and entertaining in a wholesome way.
Meanwhile, I'm told that their business in England and Europe is growing nicely and that the company will make a good profit in 2007. Is there any way for me to keep my stock and not turn it in to the Ripplewood group, who I think are a bunch of vultures?
W.P., Vancouver, Wash.
Dear W.P.: I'm a Reader's Digest (RDA-$16.89) kind of guy. Reader's Digest was among my favorite companions when I was in knickers. I was enthralled with the easy-reading apologues of real people; I enjoyed walking the landscape of its stories, meeting honest-to-goodness heroes and applauding when the good guy prevailed.
Reader's Digest was as much a symbol of America as our flag. It was synonymous with honesty, humility, fair play, dedication, patience and the triumph of good over evil. Reader's Digest was a Norman Rockwell moment, pumpkin pie, true love, the smell of burning leaves, Andy Williams and a family picnic with real lemonade and potato salad.
Reader's Digest could have run for president on any ticket and would have been elected by a landslide Even Richard Nixon subscribed to Reader's Digest.
But today, RDA is found mainly in nursing homes, doctors' and dentists' offices, churches, hospitals, orphanages, and AARP and AAA offices.
Its content has zero appeal to today's readers, most of whom do the majority of their reading on the Internet or via text messages on their cell phones.
Over 15 years, revenues evaporated from $3.4 billion to $2.4 billion in 2006, and earnings clunked.
Subscriptions to RDA books on cooking, health and fitness, travel, gardening, religion, crafts, religion, fairy tales and picture books, teachers' aids, music videos, photo albums, science and nature as well as other magazines are foundering.
Today's readers don't want wholesome subjects, which are tedious and boring; they want hype, hysteria, sex, porn, blood, guts, gore and fantasy.
Reader's Digest has a swell name but zero growth potential.
This stock hasn't had a buy signal since April 2002, when the highly respected analysts at Merrill brilliantly recommended RDA at $25 and the stock crashed.
The Ripplewood Holdings' offer at $17 a share is the best deal around.
Ripplewood intends to divide RDA into smaller pieces, believing, within the next three to five years, they should be able to realize about $23 per share on RDA's 95 million outstanding shares.
And that's a nice profit of $6 a share, or $570 million.
So if the Ripplewood folks think there's $23 of value (and they've got to work their butt off to get it) then there's little chance in this universe that you'd be able to get your money back at $29 a share.
However, you do not have to sell your shares to Ripplewood and they cannot force you to turn your certificate over to them.
And no matter how many letters they may send you and no matter how often they call you, those shares are yours to keep forever.
However, if you keep the shares, you may lose out on the $5,100 (300 times $17) check they want to send you.
I understand how you feel, but keeping those shares is sort of like biting off your nose to spite your face.
So give them the stock if they ask for it.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or e-mail him at malber@adelphia.net.

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