Charles Koch interviewed by Time Inc. chief content officer Alan Murray. Source: YouTube

The Koch Brothers are investing $650 million to support Meredith Corp.'s takeover of Time Inc., and insist that they won't have any managerial or editorial influence over the combined magazine publisher. But no one involved with the deal will say that the promise of passivity is codified in anything beyond press releases, and the prospect of a strong financial return is anything but certain.

Why it matters: The investment could give the GOP mega-donors proximity to a news publications like Time and Fortune, plus widely-read lifestyle magazine People.

Bull case for Koch
  1. The combined company would have the sixth largest U.S. digital audience, just below Amazon and above Comcast/NBC.
  2. Meredith sees more than a half-billion dollars in synergy savings, and a source says it expects to also divest some struggling Time Inc. brands (on top of assets already for sale, including Time UK, Sunset, Golf Magazine and Essence).
  3. Meredith has managed to maintain profitability, and has seen its stock price consistently rise since a March 2009 nadir.
  4. Meredith does own a bunch of local TV stations, and there could be some new upside given recent relaxation of federal ownership rules.
  5. Koch will receive an 8.5% cash-pay dividend with some equity upside on its perpetual preferred shares, which is bit reminiscent of how Carlos Slim's investment into The New York Times Co. was structured.
Bear case for Koch
  1. Most of Time Inc.'s top brands have struggled to turn once-lucrative print businesses to digital money-makers, due to the volatile advertising climate perpetuated by Google and Facebook. Moreover, 59% of Time and Meredith's combined revenue, and 25% of its EBITDA, come from print (ads plus circulation). As you might have heard, print is a declining business — no matter how popular People remains in waiting rooms.
  2. Meredith is taking on a lot of debt to finance the acquisition. It promises that it plans to deleverage quickly, but too much debt has been an albatross around Time Inc.'s neck since it was spun out of Time Warner in mid-2014.
  3. Time Inc. has spent the past year restructuring its business and editorial teams to meet the demands of a new digital publishing economy. It's unclear how the companies will merge assets specifically, but it's possible that the deal could result in another laborious restructuring.
  4. No other financial sponsor or corporate was willing to pay this sort of price when Time Inc. went up for auction earlier this year. Moreover, shares were trading at just $10 before rumors of the Meredith bid surfaced.

Comment: Meredith says that the Koch investment is passive. No managerial or editorial influence, nor a board seat or board observer rights. And, to be sure, Koch has made plenty of passive, minority investments in the past, including a $2 billion infusion into private equity-backed Infor earlier this year. But when Axios asked a Time spokeswoman if the Koch passivity was written into the equity commitment letter or any other relevant documents, she told us to call Meredith. Same thing happened when we asked a Koch spokesman. But Meredith has not responded to my repeated inquiries on this point, and there is nothing about it in the 84-page merger agreement.

Bottom line: The bears are stronger than the bulls on this merger, and the Kochs' background makes it very tough to believe that this is a purely financial play. Already, the NY Times suggests there could be a data play combining Time Inc. subscriber info with with voter info held by Koch-owned i360. Or perhaps the Kochs would have an inside track on a divestiture, particularly if either TIME Magazine or Fortune were to be sold. But Time (Inc.) could prove us wrong.

Go deeper

McMaster: Trump's peaceful transition comments are a "gift to our adversaries"

President Trump's refusal to commit to a peaceful transfer of power if he loses November's presidential election is a "gift to our adversaries," Trump's former national security adviser H.R. McMaster said Sunday.

The big picture: McMaster, a retired three-star general, said that the American people must understand that the military will have "no role" in a presidential transition, and that it's "irresponsible" to even talk about it as a possibility.

Trump says Supreme Court ending Obamacare would be "a big WIN"

Photo: Spencer Platt/Getty Images

President Trump on Sunday tweeted that the Supreme Court invalidating the Affordable Care Act would be "a big WIN for the USA!"

Why it matters: Democrats have argued that confirming a Trump-appointed justice to the Supreme Court would put the Affordable Care Act, which protects pre-existing conditions, in jeopardy. Trump's Supreme Court pick, Amy Coney Barrett, has written that she disagreed with Chief Justice John Roberts when he ruled to uphold the law.

Trump sees court fight as virus respite

Spotted at Trump's rally last night at Harrisburg International Airport in Middletown, Pa. Photo: Joshua Roberts/Reuters

At a rally in Pennsylvania last night, President Trump basked in adulation for Judge Amy Coney Barrett and said, "She should be running for president!"

Why it matters: She might as well be. The Trump campaign is thrilled to be talking about something besides the president's handling of COVID, and it's going all-in to amp up the court conversation.