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Pair of Suitors Woo New Frontier

A bidding war has erupted for adult payper-
view pioneer New Frontier Media, after Playboy TV distributor
Manwin Holdings launched a $1.50 per share unsolicited
offer for the company.

The bid comes weeks after Channel Islands investor group
Longkloof Ltd. lobbed a $1.35 per share unsolicited offer for the
company, in a letter to the board of directors that was critical
of New Frontier’s management.

Manwin, a Luxembourg-based holding company of several
online adult sites and services, took a much more subtle approach
to New Frontier, adding that it has been “impressed”
with New Frontier management, but believes the company is
undervalued because of its size
and market capitalization.

New Frontier has about 16.2
million shares outstanding and
a market capitalization of $24.4
million. The stock is generally
lightly traded — its average daily
volume was as low as 2,700 shares
before Longkloof’s unsolicited offer
on March 9 increased share
volume to 259,000 for that day.

Manwin’s bid works out to be
worth about $24 million, ahead
of Longkloof’s $18 million offer
for New Frontier. While investors
would appear to make out on either
deal — New Frontier was
trading at $1.13 prior to the Longkloof
bid on March 9 — some
key New Frontier executives also
could make out handsomely.


According to a proxy statement
fi led in July, five top New Frontier
executives are eligible for about
$7.3 million in severance, bonus
and health and welfare payments
in the event of a change of
control at the company. At the
top of that list are chairman and
CEO Michael Weiner ($2.7 million)
and president Ken Boenish
($2.3 million). Chief financial officer Grant Williams ($885,000),
chief technology and information
officer Scott Piper ($940,000)
and chief legal officer Marc Callipari
($862,500) round out the eligible

Manwin operates several popular adult websites such as
Brazzer’s and Twisty’s and also manages Playboy TV’s online
and television operations, and online operations for Wicked
Pictures, an adult production house. In January, Manwin acquired
Digital Playground, one of the adult industry’s largest
film studios.

Manwin said in a statement that it believes by combining
New Frontier’s transactional television business with its own
and leveraging its own online assets, it will be able to offer
more compelling content.

“Our recent experience with Playboy TV proves to us the value
of TV as a distribution platform, and we have been seeking
ways to foster additional business in that segment of the
industry,” Manwin managing partner Fabian Thylmann said
in a statement. “New Frontier Media’s business is a natural fit
which should create synergies immediately benefi ting both
Manwin’s pay TV providers and their customers.”

New Frontier, like other adult content companies, has been
hit hard by free content available on the web. And that’s reflected
in its financials, as revenue at New Frontier has declined
steadily in the past five years from $63.3 million in 2007 to
$48.7 million in fiscal 2011. What was once a profitable business
that reported net income of $12.3 million in 2007 and $8.8
million in 2008 has bled red ink for the past several years, losing
nearly $3 million in 2009, $1.1 million in 2010 and $760,000
in 2011.


New Frontier may also provide an opportunity for Manwin to
go public without having to jump through the hoops of an initial
public offering. According to CNBC, Thylmann hinted at
testing the public waters at industry conference Internext 2012
in Las Vegas in January.

“I think going public is doable, but it’s very difficult with a
pure adult company,” Thylmann said at the conference according
to CNBC. “It needs to be mixed with something mainstream,
and finding that isn’t easy. … There are certainly a few
good targets out there.”

New Frontier acknowledged receiving the Manwin offer
and said a special committee of independent directors,
formed shortly after it received the Longkloof bid, will evaluate
the newest proposal. The company declined to comment
beyond its public statement on the matter.