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Takeover Battle Looms for Publicly Traded Porn Company

Wednesday, 28 Mar 2012 | 10:16 AM ET

Despite a widely publicized downturn in porn industry profits over the past few years, investors still think there's money to be made there – so much so that a bidding war has erupted for one of the few publicly traded companies with ties to the adult industry.

New Frontier Media, which oversees nine adult-themed pay-per-view networks, including XTSY, TEN and Penthouse TV, has received a pair of unsolicited takeover offers this month as the company's stock has hovered under $2 per share for over a year.

Longkloof Limited, an investment holding company based on a small island in the English Channel, which owns a 15 percent majority share in New Frontier , started the bidding on March 9, with a cash offer of $1.35 per share – an offer worth nearly $19 million. On March 25, Manwin Holdings jumped in with an offer of $1.50 per share – raising the price to over $24 million.

Both offers were unsolicited. New Frontier says it has formed a special committee of independent directors to review the proposals from Manwin and Longkloof and will announce its findings at a later date. The company did not announce any timeframe for its decision making process – and declined to comment beyond the press releases it has already distributed.

Longkloof, in its letter to the company announcing the offer, expressed concerns about the company's current Board of Directors and indicated it was very unhappy with the company's financial performance of late.

"We do not believe the current Board is capable or willing to undertake the actions necessary to enable NOOF to compete in the future, as the track record established by the current Board over the past several years has been dismal," it wrote. "Unfortunately, we believe the current Board is more focused on maintaining its excessive director fees and engaging in related party transactions, rather than running the Company in the best interest of the stockholders."

Manwin seems to be taking a vastly different approach in its courting of the company, saying in a press release it was "highly impressed" with the company and its management team and adding it believed the stock has been undervalued "because of [New Frontier's] size and market capitalization."

“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," said CEO Fabian Thylmann. "New Frontier Media’s business is a natural fit which should create synergies immediately benefiting both Manwin’s pay TV providers and their customers.”

Manwin isn't a particularly well-known name outside of porn (in large part because it operates as a holding company), but it has quietly become one of the industry's largest players in the past two years.

Based in Luxembourg (with offices around the globe), Manwin owns many of the major online porn sites (like Brazzers and Twisty's), oversees Playboy's online and television operations, manages the online operations of Wicked Pictures and in January signed a deal to buy Digital Playground, one of the industry's largest filmmakers.

While Longkloof's offer would almost certainly result in New Frontier going private, Manwin's intentions are less apparent. It could easily take the company private as well, but it could also use the acquisition as a stepping-stone to become a publicly traded entity, something Thylmann teased in January at a keynote speech at Internext, an industry-only conference held immediately before the Adult Entertainment Expo.

"The lenders asked that, because they want to know if I have an exit [strategy]," he said. What I told them is: 'The money I make today is fine. I don't need to go public. … I think going public is doable, but it's very difficult with a pure adult company. It needs to be mixed with something mainstream – and finding that isn't easy. … There are certainly a few good targets out there."

Sales at New Frontier Media, which also produces many of the films that air late at night on Cinemax and Showtime, have declined regularly over the past five years and the company has posted losses for the past two fiscal years. Last year, it posted net revenue of $50.4 million.

It's one of just a handful of porn companies that are publicly traded. A smaller European distributor, Private Media, is also available to investors, but due to low share prices, Nasdaq has threatened to delist the company on June 17 if it fails to submit a plan to regain compliance.

Also publicly traded are Penthouse and adult dating service owner Friend Finder Network , LodgeNet (a competitor, of sorts) to New Frontier) and Rick's Cabaret International, a Houston-based operator of adult nightclubs throughout the U.S.

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