Investment and media partnership acquires Lillian Vernon Corp.

Lillian Vernon Corp. has agreed to be acquired by investment firm Ripplewood Holdings LLC and ZelnickMedia in a deal expected to be finalized by the end of July. The purchase price of $7.25 per share represents a 73% premium on the $4.20 closing price of its common stock on Tuesday. Founder Lillian Vernon and her family, who own 40% of the company, will receive about $24 million under the agreement. Lillian Vernon will retain a 5% stake in the company.

The company’s 2002 sales at $256 million had dropped 10% from the previous year and reflected a net loss of $9 million. Internet sales, however, have remained a bright spot, posting double-digit sales increases each quarter in recent quarters, the company reports. Online sales have grown to represent about 25% of total sales. ZelnickMedia, a partnership of media executives with experience in the television, recording, print media and direct marketing industries, will be responsible for the day-to-day operation of the company when the deal closes.

Founder Strauss Zelnick formerly headed BMG, the Bertelsmann conglomerate’s record group, a business known for its association with the likes of NSync and Brittany Spears. At first glance it might seem an unusual a partnership for a retail company known for gadgets and housewares. But it’s a fit that makes sense, says partner John Friedlich. He says the partners expect to explore new opportunities not only in the catalog businesses but also the Internet, TV home shopping and potentially infomercials.

Through the partners` collective past experience, “We’ve been running e-commerce and electronic marketing businesses for a long time,” says Friedlich. Friedlich formerly was involved in the operation of the subscription department of the Wall Street Journal, for example; another Zelnick partner was chief Internet officer for BMG.

“Our desire is to apply our media backgrounds to the direct marketing business,” he added. “What we’re attracted to in this space is the strength of brands. There’s been a proliferation of new brands including new Internet brands, but Lillian Vernon has built her brand into a position of strength and value over 50 years.” Lillian Vernon’s audience demographic has some overlap with the TV home shopping audience, he confirms. In addition, he says, the partners hope to leverage innovations in areas such as CRM to introduce both the 50-year-old brand as well as some new products that fit the brand’s value proposition, which he defined as “quality at an attractive price,” to a new generation of customers. “But we’re not interested in changing the brand,” he adds. “Our desire is to build on what’s there.”

Recent years have seen increasing interest among media and entertainment companies in so-called transactional media, with the partnership of NBC-TV and ValueVision Media but one example.