Hefner Nixed Deals to Maintain Lifestyle, Suit Says

Feb. 9 (Bloomberg) -- Hugh Hefner, founder and majority shareholder of Playboy Enterprises Inc., was sued by an investor who said Hefner rejected acquisition suitors during the past six months so he could maintain his lifestyle.

David Brown sued yesterday in state court in Los Angeles. He seeks class-action, or group, status for the suit on behalf of other investors. Chicago-based Playboy Enterprises owns the namesake men's magazine.

Iconix Brand Group Inc., based in New York, in December decided to break off purchase discussions with the company after determining it would be too complicated to divest, shut down or find partners for Playboy units it didn't want to operate, according to two people familiar with the matter. Hefner also rejected an offer from San Francisco-based Golden Gate Capital Corp., Brown said.

“According to published reports, one of the main reasons why these deals failed was Hefner's insistence on maintaining the lifestyle to which he has grown accustomed,” Brown wrote.

Martha Lindeman, a spokeswoman for Playboy, said Hefner hadn't yet been served with the complaint and she couldn't immediately comment.

Hefner, 83, owns almost 70 percent of the Class A stock and almost 28 percent of the Class B shares, according data compiled by Bloomberg. Only the Class A shares have voting rights, according to the complaint.

‘Personal Interests'

“Hefner has breached his fiduciary duties by placing his personal interests above and ahead of the interests of the other shareholders and to their detriment,” Brown said in the complaint.

Brown, of Los Angeles, said he owns 47,000 shares of the Class A stock and 130,000 shares of the Class B stock.

Playboy rose 12 cents, or 3.8 percent, to $3.26 in New York Stock Exchange composite trading. The stock has gained 85 percent in the past year, putting the company's market value at $114 million.

During the past year, the stock traded at a high of $5.22 and a low of $1.10.

“In its 1999 heyday, Playboy traded as high as $36 per share,” Brown said in the complaint. “Today, the price of a Playboy magazine is far higher than the price of a share of Playboy common stock.”

The Iconix and Golden Gate offers were both for more than $300 million, “a significant premium” over Playboy's share price, Brown said.

Bunny-Head Logo

Iconix was interested in Playboy's licensing business, including its Playboy bunny-head logo, and Golden Gate in its adult-media business, Brown said.

Dave Schefcik, a spokesman for Golden Gate, and Maria Dolgetta, a spokeswoman for Iconix, declined to comment.

Playboy reported a net loss of $156.1 million, or $4.69 a share, for 2008, compared with net income of $4.93 million, or 15 cents, in 2007.

For the first nine months of 2009, the company reported a loss of $23.5 million, or 70 cents, compared with a loss of $13.6 million, or 41 cents, for the same period the previous year.

“Despite the losses in Playboys' businesses, Hefner has continued to live the good life and make sure everyone knows it,” Brown wrote. “Hefner remains in the limelight, showing up at media events and at the Playboy mansion -- which is owned by Playboy and leased to Hefner -- with his girlfriends by his side.”

Punitive Damages

In addition to damages based on Hefner's alleged breaches of fiduciary duties, Brown seeks punitive damages.

A sale of Playboy would mean an exit for Hefner after his daughter Christie Hefner, 57, resigned as chairman and chief executive officer of the unprofitable company in January 2009. Christie Hefner ran the company since 1988. Scott Flanders, the former CEO of Freedom Communications Inc., took over in June.

Hugh Hefner first published Playboy in 1953 with photos of Marilyn Monroe.

The case is Brown v. Hefner, BC431514, California Superior Court (Los Angeles).
http://www.bloomberg.com/apps/news?pid=2…