February 21, 2024

BuzzFeed Sells Complex and Likely Buys Time With Noteholders

Axios reported that the Complex to NTWRK deal has officially closed in a move that we knew was coming and still likely generates a sigh of relief inside BuzzFeed HQ. According to Axios:

BuzzFeed has sold Complex, the entertainment media brand it acquired for $300 million in 2021, to livestream shopping platform NTWRK for $108.6 million, the companies announced Wednesday. BuzzFeed also announced a plan to cut expenses, which includes 16% layoffs.

As part of the all-cash deal, BuzzFeed will retain ownership of some of Complex’s popular franchises, including First We Feast, which produces Complex’s popular YouTube program “Hot Ones.”

This is the necessary first step BuzzFeed has to take if it will overcome a number of hurdles it is facing. As a refresher from our piece in January, I see two significant problems for BuzzFeed in the immediate sense.

First, it has $150 million in convertible debt that matures on December 3, 2026; however, if we look at the details more specifically, noteholders can start demanding their loan and interest be paid back starting December 3, 2024. In other words, this year.

Second, Nasdaq has threatened to delist BuzzFeed because its share price is under $1. Should that happen, noteholders can demand repayment immediately. According to BuzzFeed’s Q3 earnings statement:

If our common stock does not continue to be listed on a national securities exchange, we may be required to repurchase the Notes.

Under the indenture governing our $150.0 million aggregate principal amount of unsecured convertible notes due 2026 (the “Notes”), the failure of our common stock to be listed on any national securities exchange or quoted on Nasdaq would constitute a fundamental change. As such, within 20 business days of a delisting, we would have to offer to repurchase the Notes for cash at a price equal to 101% of par plus accrued and unpaid interest, no later than the 35th business day following such notice.

Fortunately for BuzzFeed, shareholders are pleased with the announcement of the sale of Complex. In after-hours trading, shares jumped from $0.22 to $0.50, a 126% increase. Craig Fuller of Firecrown and FreightWaves tweeted:

Short covering from investors betting on imminent bankruptcy. The cash infusion gives Buzz a longer life…

And this makes a lot of sense. BuzzFeed is suddenly flush with approximately $100 million, so will noteholders push the business into bankruptcy? That seems unlikely. An 8-K filed on Wednesday, February 21, confirms that. According to the 8-K:

In connection with the transaction, the Company is required to repay:

  • approximately $30.9 million to the holders of the Company’s $150.0 million unsecured convertible notes due 2026 (the “Convertible Notes”); and
  • approximately $33.8 million outstanding under the Company’s three-year $50.0 million revolving and standby letter of credit facility (the “Credit Facility”), plus (i) accrued and unpaid interest of $0.7 million, (ii) an early termination fee of $0.5 million, and (iii) a standby letter of credit fee of $0.5 million (the $33.8 million approximates the amount of revolving debt outstanding as of September 30, 2023).

The Company also intends to amend the indenture governing the Convertible Notes to provide that 95% of the net proceeds of future asset sales must be used to repay the Convertible Notes. The Company terminated the Credit Facility at Closing concurrently with the repayment of the loans thereunder and paid a termination fee of $500,000. Additionally, the letters of credit outstanding under the Credit Facility will be cash collateralized in an amount of $17.1 million.

In essence, BuzzFeed has done three things with this money. First, nearly $31 million was used to repay the noteholders. Another $33.8 million was used to repay the outstanding revolving and letter credit facility. And finally, it has agreed to use 95% of any money it generates selling future assets to pay back noteholders. In the 8-K, BuzzFeed says it “intends to amend the indenture.” Is it still waiting for approval from noteholders, or is this a done deal? We’ll need to wait for future filings.

In a press release about the deal, BuzzFeed also reported receiving $5.7 million “related to the use of the company’s NY offices and severance- and other employment-related costs.” Along with the 16% reduction in force, it expects to yield “$23 million in annualized compensation cost savings.”

So, if we return to the two significant problems BuzzFeed has been dealing with, we can check the first one off. If noteholders agree to amend the terms, then noteholder tension will likely be alleviated with this deal and a commitment to sell additional assets. No one wants bankruptcy, and paying some of the debt back, plus committing to further payments with asset sales, gets everyone on the same page. And I suspect more sales is what’s coming next.

You’ll notice that First We Feast, which operates the well-regarded Hot Ones brand, was not included in this deal. And BuzzFeed still owns Tasty. According to a WSJ from January:

BuzzFeed, whose stock has lost more than 97% of its value since the company went public in 2021, is looking to sell its food sites, Tasty and First We Feast, according to people familiar with the situation.

Maybe they can be a package deal. According to a reader in the AMO Slack channel:

My bet is that they held hot ones back in a hope that they can get a significant premium for a tasty + first we feast package because you can “own” food. Network doesn’t want tasty because it’s quite divorced from their GTM.

That would actually make sense. Find the right buyer who cares enough about food, and they will very quickly have quite a bit of food-related scale. BuzzFeed would then use a large percentage of that sale price to pay off the noteholders even further.

But BuzzFeed is still not out of the water yet. It still needs to get its share price above $1 before May 28, or Nasdaq could delist it. However, as traders realize bankruptcy is less likely, they may not short the stock nearly as much, which could be enough to get it above that price point. And, of course, an asset sale could give it all the cash it needs to survive.

And then, of course, BuzzFeed is much smaller because of this. According to the press release:

Fourth quarter revenues on a continuing operations basis are now expected to be in the range of $73 million to $78 million (and revenue generated from the discontinued operation is now expected to be $14 million to $18 million), as compared to the financial outlook of $99 million to $110 million, provided by the company in its third quarter 2023 earnings release on November 2, 2023.

Fourth quarter Adjusted EBITDA on a continuing operations basis is now expected to be in the range of $15 million to $20 million, as compared to the financial outlook of $20 million to $30 million, provided by the company in its third quarter 2023 earnings release on November 2, 2023.

And this doesn’t include any other asset sales. So, what will be left? Nevertheless, for right now, it can catch its breath. And hey, if BuzzFeed is looking for ideas, many AMO readers shared their thoughts here.

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