Shareholders will vote today to take BuzzFeed public via a merger with a special-purpose-acquisition company, or SPAC. The deal is expected to close Friday. By Monday, the company could start trading under the stock ticker BZFD. Shares are expected to trade for around $10. Jonah Peretti, BuzzFeed’s CEO, has already sent out invitations for the ringing of the bell on the floor of NASDAQ and for a celebratory dinner at the Indian restaurant Sona, where he will perhaps chow down on $38 green pepper halibut and think about the some $64 million in stock options he holds and the fact that he will retain control of the company he founded. But not everyone is in the mood to uncork Champagne.
BuzzFeed News employees tell New York that its 61-member unit is (digitally) walking off the job this morning for a 24-hour period, even as shareholders get ready to vote. “There is no future of BuzzFeed without the workers, no product for them to take public,” says Addy Baird, a reporter and chair of BuzzFeed News’ union. The news division makes up just 5 percent of employees, but is Peretti’s vehicle for prestige. (It won BuzzFeed its first Pulitzer Prize this year.) Writers, editors, photographers, designers, and digital-operation teams are especially outraged that, after two years of negotiating on its first contract, management’s latest counteroffer, a copy of which was shared with me, included a guaranteed annual pay raise of just one percent. “They have not taken these negotiations seriously,” says Baird, “so this is not just some random day that we’re walking out. This is a very clear contrast to the company’s priorities, which are making rich executives richer.” (As an employee of New York, I am represented by the same NewsGuild as BuzzFeed’s union.)
Not every serf on the content farm is ready to pick up a pitchfork — some will see some money from the merger and are feeling “cautiously optimistic,” says one longtime employee. “If things go nicely, I’ll have a small chunk of change,” says this person. “I’m not going to quit my job, but it would be a nice pad to my savings.” But nobody goes into this grinding business for the money. And many BuzzFeeders are too busy scratching their heads to rub their hands together. “There’s definitely the feeling, particularly among news employees, of, like, ‘What the fuck am I supposed to do here with these options?’” says Baird, who adds with a laugh: “If I could do math, I wouldn’t be a reporter.” A diaspora of option-holding ex–BuzzFeed employees scattered across media have started email chains to help one another figure out what it all means. Inside, says the longtime employee, “people from all different types of departments are going ‘I don’t understand what a SPAC is!’”
Here’s a primer: A SPAC, sometimes called a blank-check company, is an empty entity that outside investors pour money into and use to take a real, operating company public. This particular SPAC is named 890 Fifth Avenue Partners, after the Avengers headquarters in the Marvel Comics Universe. It will absorb both BuzzFeed and Complex Networks, combine them, then spit out a new public company. SPAC mergers are a quicker way to go public than an initial public offering. They can also be larded with costly concessions to investors and have ended poorly for many companies. Hot for a minute last year, they’ve since cooled off. Vice’s SPAC dreams sputtered out in August. Media executives are watching closely to see how it will go for BuzzFeed. (Peretti declined to comment for this story.)
Earlier this year, Alex Korda, a deals analyst at the Edge, studied 115 SPAC deals and found that the ones in the communication-services sector were consistently among the worst performers. “Definitely this is one of the two major sectors that we found are best to avoid, or at least view with extreme caution,” says Korda. “In the first month, 22 percent of communication companies outperformed, meaning they made money and they outdid the index, while the other 78 percent flat out lost money,” he says. “By the third month and beyond, they were all losing money at a deepening rate through to the 12-month period.”
Michael Ohlrogge, an NYU Law professor who studies SPACs, was similarly downcast. “Even among SPAC deals, there’s a lot of indicators that this one would be poorly received among the market,” he says, pointing out a number of “giveaways” in the BuzzFeed deal; namely, the “convertible-note pipe,” a financial mechanism that would allow certain investors to recoup all of their investment plus a generous interest payment if the company performs poorly. “Every single SPAC deal that I’ve seen that has a convertible note has done really poorly post-merger,” says Ohlrogge. One person familiar with the deal acknowledges the convertible notes are “a double-edged sword” but that “through normal equity investors, the deal was just not going to happen.”
Another giveaway — this one less consequential — concerns NBCUniversal. In 2015, it invested $200 million in BuzzFeed. It threw another $200 million at BuzzFeed the next year and valued the publisher at $1.7 billion. Now, under the new SPAC deal, BuzzFeed carries a lower valuation, at about $1.5 billion. As an August story in The Wall Street Journal revealed, this pissed off execs at the Peacock. So concessions to NBC needed to be baked into the SPAC deal. “If NBC were optimistic that the deal was going to go great, this wouldn’t be an important thing for them to have,” observes Ohlrogge. (The suits at 30 Rock weren’t the only ones grumbling about the lesser valuation. Two top shareholders described to me how other shareholders believed that Peretti could have received a higher valuation from a different SPAC but went with the Avengers SPAC because the media and tech dorks who run that one — people you’ve probably never heard of — allowed for a deal that lets him remain in control.) If the share price holds steady or slowly starts to rise post-merger, these concessions won’t matter. If it underperforms, it’s going to hurt.
The NBC deal is seen to be the dividing line between those who stand to make real money from their stock options and those who don’t. Employees hired before the NBC investment, when there was a low strike price on options, could make bank. For those who were hired in subsequent years, there isn’t much to be made at the current valuation. As with all start-ups, the earliest employees do best. (Remember the guy who graffitied the wall at Facebook’s original headquarters in Silicon Valley in exchange for early stock options that went on to be worth hundreds of millions of dollars?) That first handful of content farmers who sat around a little office on Canal Street and figured out how to summon the viral gods — again, people you probably haven’t heard of — will do well. Only a tiny core of those early hires are still around, but at a company in which labor fury is at a constant low simmer, people are being tight-lipped about who stands to really cash in. Also, compensation packages vary by employee and it’s difficult to say with much certainty who does or doesn’t hold a large number of options and how those options are priced. It’s all byzantine, but one person guaranteed to make a lot is Dao Nguyen, who joined in 2012 and is now the company’s publisher. Another is Ben Smith, whom Peretti hired in 2011 to build out a newsroom. (Smith, now at the New York Times, declined to comment.) Although not everyone who came in early stands to gain. “I couldn’t afford to buy my stocks before getting laid off,” says one ex-editorial employee. “Tragic.”
BuzzFeed started as a homunculus of the old Huffington Post. Peretti’s original investors were a Johnson & Johnson heir and Kenneth Lerer, another Huffington Post honcho. Since then, BuzzFeed has lived many lives. Remember when it was going to overtake the Times? Or when it opened a motion-picture studio in Los Angeles? Or when that video of a watermelon with rubber bands wrapped around it was the future of media? Or when it started selling cookware at Walmart? Now, after devouring HuffPost and Complex, Peretti wants to continue scaling up and making acquisitions. In the meantime, BuzzFeed is touting a strong e-commerce game. But rival digital media CEO Bryan Goldberg, of Bustle media group, dismissed BuzzFeed’s growth in that sector, telling The Information that “some publishers have gotten way ahead of themselves in telling the commerce story.”
Peretti will soon be beholden to a new class of investors. “I think it’s going to be a bit of a rude awakening for BuzzFeed,” says a current employee. But if BuzzFeed has mastered anything, it’s the art of adapting. Perhaps the “rude awakening” will be for the new shareholders, who may not yet be used to the company’s whiplash-inducing business model change-ups and all the smushy metrics that purportedly define success in the volatile world of digital media. A BuzzFeed flack points to the fact that it made the last several earning reports public as a sign that Peretti is ready for prime time.
“I think all the issues that he’s had to deal with have positioned him very well to be a more than competent CEO of a public company,” says Lerer, who holds stock and has known Peretti since the bespectacled founder was the apple of Arianna Huffington’s eye. “He’s been through the ups, the downs, he’s been sideways, he’s been right side up, he’s been through the grinder. I think he knows what he wants to do, and I think he’ll do it.”