Playboy Hugh HefnerOnly one real question needs to be asked about Hugh Hefner's bid to take the company he founded private: Why didn't this happen sooner?

The 84-year-old lounge lizard has put forth a formal proposal to buy out all the publicly owned shares of Playboy Enterprises (PLA) with an assist from Rizvi Traverse Management, a private equity firm. Hefner's offer of $5.50 a share contains significant bait for stockholders, constituting a 40% premium over the stock's price during Friday's trading. It also may represent the company's best hope for exiting the downward spiral it's been trapped in for years and resuming some kind of growth.

"There's really no upside to being public for them," says Andrew Buchholtz, managing director of A. Buchholtz & Co. "It's not like Playboy's been using the public markets to raise capital. The Playboy brand is still a tremendous brand internationally. You can exploit that much further than they are today."

Keeping It in the Family


That, more or less, was also the opinion of the investment bankers I polled in December 2008 when I first heard rumors of Playboy going private. The company's share price has rebounded a bit from the $2.20 it was trading at back then, but that has a lot to do with drastic cost-saving measures it has taken in the interim, such as relocating the editorial staff to Chicago and outsourcing business functions to American Media, publisher of the National Enquirer.

For Hefner, going private isn't just a way to get access to capital. It's also -- perhaps primarily -- a route to ensuring Playboy stays in the family. Although his daughter Christie Hefner, the company's longtime CEO, departed in 2008, Hugh Hefner has two sons, Marston and Cooper, who are seen as potential heirs to his silk pajamas. (That's only a metaphor, I hope.)

But could tightening his grip actually cause Playboy to slip through Hefner's fingers? "The danger is that he could lose control of the process and someone else could buy it," says Reed Phillips, managing director of the media investment bank DeSilva & Phillips. "This is going to open it up to other offers." Indeed, that's already happening: FriendFinder Networks, which owns Penthouse, says it's "looking at an alternative proposal."

It's unlikely, however, that FriendFinder's proposal will find much favor with Playboy's controlling shareholder: namely, Hugh Hefner. He says he doesn't intend to entertain other offers. "I do think Hugh Hefner's going to take exact same approach Bob Guccione did with Penthouse," says Phillips. "Anything you see him doing is going to be to maintain control, not to get the best value for the other shareholders."

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Disclosure: I am currently writing an article on assignment for Playboy.

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