January 2, 2024

BuzzFeed Has 336 Days to Figure It Out

Welcome to 2024. The last couple of weeks have been incredibly restorative for me, especially as I transition from having a day job working for someone else to having a day job working for myself. This is the first time in my professional life where I get to be an entrepreneur 100%. So, I’m ready to get started.

I’m also incredibly excited to announce that we are very close to bringing on a second writer for AMO. We’ll be digging into very tactical topics with the first number of pieces all about subscription businesses. If you don’t want to miss these, upgrade and become an AMO Pro member. More to share on this soon.

Now let’s get into it…

BuzzFeed’s convertible note problem

Despite trying desperately to get out from under its pile of debt, BuzzFeed is rapidly reaching a point where its creditors might force change on the business. It, effectively, boils down to the $150 million in convertible notes that the company raised in June 2021. According to its Q3 earnings report:

In June 2021, in connection with the entry into the merger agreement pursuant to which Business Combination was consummated, the Company entered into subscription agreements with certain investors to sell $150.0 million aggregate principal amount of unsecured convertible notes due 2026 (i.e., the Notes). In connection with the closing of the Business Combination, the Company issued, and those investors purchased, the Notes. The Notes bear interest at a rate of 8.50% per annum, payable semi-annually, are convertible into approximately 12,000,000 shares of our Class A common stock (or, at the Company’s election, a combination of cash and our Class A common stock), at an initial conversion price of $12.50, and mature on December 3, 2026.

I’ll break this down for you. The $150 million that it raised is debt that costs 8.5% per year. That $150 million can be converted from debt into 12 million common shares of BuzzFeed stock. The convertible note effectively gave BuzzFeed access to much needed cash to finish its acquisition of Complex without having to issue many more shares; in other words, it avoided dilution early on.

That quote doesn’t include a number of other important points. First, the note can be converted into shares starting on December 3, 2024. Second, buried deep in the legalese about the convertible note, there is a table that lays out additional shares note holders would receive depending on what the share price is at conversion. Then there is this point:

Each holder of a Note will have the right to cause the Company to repurchase for cash all or a portion of the Notes held by such holder (i) at any time after the third anniversary of the date on which the Business Combination was consummated (i.e., at any time on or after December 3, 2024), at a price equal to par plus accrued and unpaid interest; or (ii) at any time upon the occurrence of a fundamental change (as defined in the indenture governing the Notes), at a price equal to 101% of par plus accrued and unpaid interest.

In other words, starting on December 3, 2024, the note holders can just demand their loan and interest payable to them in cash. The problem? BuzzFeed doesn’t have the cash.

The Information reported last week that BuzzFeed is “close to an agreement to sell most of its Complex Networks business to Ntwrk … at a price that will be a little above $100 million.” The Information goes on to report:

Peretti was hoping the Complex assets would fetch close to $150 million, as The Information previously reported, which would have allowed the company to pay off most of what it owes on convertible notes that come due for repayment in December of 2024. If BuzzFeed sells the business for a little more than $100 million, it will need to raise another $100 million to pay off the notes and accrued interest by next December, when note holders can demand repayment.

At the end of September, BuzzFeed had only $42 million in cash, although it also owes about $50 million on a credit line to banks in addition to the convertible note debt. 

All of this is to say, BuzzFeed is in a tough position that it will need to figure out by December 3, 2024. In other words, it has 336 days. There are four possible scenarios that we can see play out.

The most straightforward is that it continues selling assets—it didn’t include First We Feast in the Ntwrk deal—which gives it more cash to pay off the convertible note. The problem with this is that every deal that BuzzFeed does makes the company smaller, generating less revenue, and, therefore, less cash. But getting out from under this convertible note is necessary because the amount it owes continues to increase.

Second—and this is highly unlikely—holders of the notes convert into shares of BZFD. Here’s the problem… the conversion price is $12.50. Divided into a hypothetical $1,000 note, that’s 80 shares. And while investors are entitled to additional shares depending on the share price, there’s a line in the agreement that says that if the stock price is less than $10.00 per share, investors don’t get additional shares. That means that for a $1,000 note investment, the investor would receive $20 worth of BZFD. See why conversion is highly unlikely?

Third, note holders will demand repayment of the notes and accrued/unpaid interest. Since BuzzFeed won’t have the cash, the company will have to declare bankruptcy. I’m unqualified to discuss this in-depth, but BuzzFeed would have to sell assets to pay back the debt. In other words, back to scenario one.

Fourth, the note holders do nothing. They are still accruing interest on the notes and they may decide that they want to wait longer to see how BuzzFeed turns around. Within this fourth option, BuzzFeed and the investors could renegotiate the terms of the agreement. The thing about business is that there are always options if both parties are willing to work together.

The question is whether investors believe BuzzFeed will ever be worth anything. If not, is it in their best interest to demand repayment and push the company into bankruptcy so they can get paid back?

And so, like I said above, it has 336 days to figure it out. But before all of this, it needs to get its share price above $1. Back on May 31, 2023, Nasdaq alerted BuzzFeed that it it had until November 27, 2023 to gets its share price back to the minimum $1 price. It obviously failed to accomplish this. According to a late November SEC filing, Nasdaq gave it an extension:

However, upon receipt of both the Company’s application to transfer from the Nasdaq Global Market to the Nasdaq Capital Market and a written notification by the Company of its intent to regain compliance with the Bid Price Requirement, including by effecting a reverse stock split, if necessary, the Staff notified the Company in a letter dated November 28, 2023 (the “Second Nasdaq Notice”), that the Company is eligible for an additional 180 calendar day period, or until May 28, 2024, to regain compliance (the “Second Compliance Period”).

Losing its place on Nasdaq would be rough for a number of reasons, but specific to the convertible notes, it could be catastrophic. According to its 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.

In other words, BuzzFeed has only 147 days from today to get its stock price back above $1 or Nasdaq could kick BZFD off its exchange and the same scenarios I explained above could come to fruition.

Suffice it to say, when we’re sitting here in 2025 talking about BuzzFeed, I imagine one of two things will have occurred. First, the company will be materially smaller. It simply has no choice. It needs to sell assets to have cash on hand. Second, the creditors will demand payment because waiting isn’t in their best interest and the company will then be an even more forced seller.

And so, the question is: who will be buying BuzzFeed’s assets? And for that, we’ll have to wait and see…

Thanks so much for reading. If you have thoughts or if you think I got something wrong, hit reply. Become an AMO Pro member to start receiving all of the content we publish here + an invitation to the AMO Slack channel. I hope you have a great week!