The deal is a 56% premium to back when a going private deal was first announced in July 2010 and it still represents a 18.3% premium over the closing price on Friday.

Icon Acquisition Holdings L.P., has obtained equity commitments from Rizvi Traverse Management LLC and a debt commitment for the transaction from affiliates of Jefferies & Company, Inc.

The board of directors has approved the transaction after forming a special committee to evaluate the deal.  Its decision was unanimous in favor of it.

Playboy CEO Scott Flanders will remain with the company in his current position and maintain a significant equity investment in Playboy.

After years of declining sales, maybe the Playboy empire will appear to be better off without having shareholders.

Playboy’s 52-week trading range is $3.04 to $6.10.

JON C. OGG

PRLog reported this morning that “Investors of Playboy Enterprises filed a lawsuit in Delaware Court on behalf of current investors Playboy Enterprises, Inc. alleging breaches of fiduciary duty by members of the Playboy Enterprises board of directors for trying to sell Playboy Enterprises, Inc too cheaply to Hugh M. Hefner and Rizvi Traverse.”

Whether FriendFinder Networks makes an offer may not matter.  The board will be reluctant to let the Penthouse owner see what it has under the engine, and Hugh Hefner owns so much stock that he can thwart any unfriendly deal.

It is not good when you see a significant drop in a company being acquired in cash, yet that is what we saw this morning on no formal news.  Shares closed at $5.37 yesterday, but right after the open came a mud slide and the stock traded down as low as $4.70.  Now shares are down “only” 7.25% at $4.98 on almost 500,000 shares in less than the first 20 minutes.

Shares closed out last week at $3.94 and were as high as $4.65 in April before the market started its slide.

Some deals are just too difficult to trust.  Whether there are problems in the merger or a counteroffer is unknown.  The trading action is already signaling issues here.  Stay tuned.

JON C. OGG

Hefner owns 69.5% of PEI’s Class A common stock and 27.7% of PEI’s Class B common stock.  The Hugh Hefner proposal is for Heff to acquire all the outstanding Class A and Class B shares of common stock at $5.50 per share in cash.  It depends upon how you interpret this language in the release over how certain this deal from Hefner is.  For whatever it is worth, it should also be noted that FriendFinder has twice tried to come public, and both efforts were thwarted due to market conditions.  That being said, there could be two deals on the table, both with questions remaining about they could be financed.  There are no assurances on either coming to fruition.  FriendFinder may make an offer, and it would seem that the board might be reluctant to let a direct competitor in to see Playboy’s books without some strict assurances.

The press release from Playboy notes that the proposal letter discloses that Hugh Hefner has had discussions with Rizvi Traverse Management LLC as the group that Hefner has expressed an intention to partner with in connection with the transaction.  Also stated was as follows:

• “The proposal letter also states that Rizvi Traverse informed Hefner that it had contacted major lenders regarding potential financing and that Rizvi Traverse is highly confident ample financial resources will be available to complete the transaction.  The proposal letter states that Hefner and Rizvi Traverse contemplate that the definitive agreements would not contain a financing contingency.  In the proposal letter, Hefner advises the board of directors that out of Hefner’s concerns for, amongst other matters, the PEI brand, the editorial direction of the magazine and PEI’s legacy, Hefner is not interested in any sale or merger of PEI, selling Hefner’s shares to any third party or entering into discussions with any other financial sponsor for a transaction of the nature proposed in the letter.”

Rizvi Traverse describes itself this way: “While adhering to an underlying value-oriented style, Rizvi Traverse Management seeks opportunities across the investment spectrum that offer the most favorable risk/reward profile at that point in time. The Rizvi Opportunistic Equity Fund and Newbridge Film Capital are the first strategies we have launched and are an extension of the decade-long track record of our team.”

Here is where and why the extreme cautions comes into play…. The board of directors said that it cautions Playboy shareholders and others considering trading in its securities that it has only received the proposal and that no decisions have been made by the board of directors with respect to PEI’s response to the proposal.  The board further noted that there are no assurance that any definitive offer will be made, nor that any agreement will be executed, nor that this transaction will be approved or consummated.

To show how tentative the deal is, the board said it will form a special committee of independent directors to consider the proposal “if the proposal moves forward.”  It last notes that the committee would retain independent financial advisors and legal counsel to assist it in its work.  Considering that Heff owns a huge portion of the stock, this exception and contingency language from the board does not sound like a very solid internal commitment.

More detail from the WSJ is now out and you will have to determine on your own whether you think FriendFinder can actually make a deal happen.

If you recall, Playboy has tried to sell itself before.  That effort fell apart, even when the stock was at lower prices.  $5.50 may sound great to anyone who got into this stock over the last 18-months from $1.00 to $4.00.  It also seems like an odd situation where after the prior reviews did not yield a firm buyer at lower prices that a higher bid would step in ahead of Hugh Hefner’s $5.50 price.  It is possible, but it seems unlikely.  If the Hefner bid disappears, if the board determines that Hefner is not capable of running the show with Rizvi Traverse, or if FriendFinder cannot come to the table, then this stock price will head south.

Playboy’s troubles have gone on for years.  There is an endless flow of free porn on the internet that has eaten Playboy’s lunch for years.  Advertising revenues have never come back to the heyday rates of when Big Media was in charge.  Policing merchandise logo theft and copyright theft is a rampant corporate challenge that has yet to be overcome and Playboy has not at all been immune from that.  The licensing for movies, casinos, and other partnerships has so far not been able to stop the dwindling sales.  Sales in 2009 were $240.3 million. 2007 sales were $339.8 million.  Revenues were $331.142 million in 2006, were $338.153 million in 2005, were $329.376 million in 2004 and were $315.844 million in 2003.  The trajectory is a downward one, and one where a stable or improving economy might not matter.  It was just at the end of June that Playboy said it would have to cut more jobs and restructure its organization.

Hefner was born in 1926, so it is not exactly as if he is a spring chicken here.  There are several things that could go wrong here, from Heff’s health to the money behind the deal.  Heff also has an implied controlling stake in the company.  There are probably also going to be “investigative law firm announcements” coming today and this week about law firms looking into whether this represents a fair price for shareholders.  In fact, we have already seen a headline reading “Rigrodsky & Long, P.A. Investigates Playboy Enterprises, Inc. Going Private Offer” cross the wires this morning.

With a share price of $5.30 this morning after a 34%+ gain, waiting around for that $5.50 price or a higher bid from another questionable company would seem to be a silly notion based upon careless greed.  The best strategy for a prudent investor who got in at lower prices in “the new normal” would be to take what is on the table from the NYSE specialist (direct market maker) and run.  At a minimum, dumping your cost basis in the shares already held and letting the rest ride assures a return of better than break-even.

JON C. OGG

Reuters:   Office vacancy rates hit a 16-year high.

Reuters:   CEO pay is down from last year and Ellison of Oracle (ORCL) was No.1 on lists of the best-paid executives.

WSJ:  Fed officials are in a pitched debate about inflation and the agency’s actions.

WSJ:   Few stores sold out the Apple (AAPL) iPad.

WSJ:   Landlords continued to cut rental rates but the amount of the cuts in Q1 slowed.

WSJ:   The Energy Department discovered that it overestimated stocks of natural gas.

WSJ:   Bond buyers are accepting more risk.

WSJ:   Movie ticket sales hit a record for the weekend.

WSJ:   Larry Summers predicted more job growth.

WSJ:   Five of the 13 IPOs in March were tech companies and more are likely in the months ahead.

WSJ:   Some publishers are working on ways to sell their products outside of the Apple (AAPL) iTunes store.

WSJ:   Playboy’s (PLA) licencing revenue is slowing.

WSJ:   Prosecutors are unlikely to bring charges against AIG (AIG) executives involved in investments that collapsed the company.

WSJ:   More SEC lawyers are leaving to make money fighting the agency.

WSJ:   Treasury yields will probably be much higher by the end of the year.

WSJ:   Full-sized pick-up trucks outperformed other vehicles.

WSJ:   HTC says its smartphone market share in the US is better than rivals.

NYT:   Greenspan is more confident about the recovery.

FT:   The commission set up to probe questions about the US financial crisis will question former Treasury chief Robert Rubin, former Citigroup (C) CEO Chuck Prince, and Alan Greenspan.

FT:   US banks earned $2.5 billion booking improvement in bonds which they purchased at discounts.

FT:   Macroeconomic hedge funds have done poorly this year.

Bloomberg:   Geithner is delaying labeling China a currency manipulator to give the People’s Republic time to adjust the value of the yuan.

Bloomberg:   Companies that buy back stock perform better in the market than rivals, which may cause an increase in share buyback programs.

Douglas A. McIntyre

Citigroup (NYSE:C) will be able to avoid about $38 billion in taxes under an agreement with the government  (Washington Post)

Playboy’s (NYSE:PLA) buyout talks with Iconix have fallen apart (Bloomberg)

Goldman Sachs (NYSE:GS) won a court case over how Lehman assets should be distributed to clients  (FT)

Abu Dhabi loaned Dubai $10 billion based on five year bonds which pay 4%. (Bloomberg)

Microsoft (NASDAQ:MSFT) Bing will soon run on Android-powered handsets  (CNET)

Douglas A. McIntyre

The end to the Iconix negotiations leaves Hugh Hefner’s company very few places to turn.

It is widely known that the interest in Playboy has been replaced by online pornography and X-rated digital content. In the third quarter, the company’s revenue dropped to $56 million from $70 million in the same period the year before. The company lost over $1 million. Playboy has $26 million in cash, but that is more than offset by $103 million in financing obligations.

Playboy’s stock has moved from $2.50 in September to $4.20 on confidence that Inconix or some other company would buy the company or some part of its assets for more than the firm’s $130 million market cap. The break down of negotiations is likely to push Playboy’s shares back toward $2.

Playboy, without a buyer, will become another old media company exercise in cost cutting, until, at least, there are no more costs to cut.

Douglas A. McIntyre

Reuters:   Concerns about interest rates hurt the markets.

Reuters:   Inconix broke off buyout talks with Playboy (NYSE:PLA).

Reuters:   Credit Suisse (NYSE:CS) settled a US probe.

Reuters:   US shopping activity fell behind last year, according to the National Retail Federation.

Reuters:   GE (NYSE:GE) sees flat earnings next year and will invest in its core industrial businesses.

WSJ:   Debt fears about Greece pushed down European markets.

WSJ:   Boeing’s (NYSE:BA) Dreamliner flew but the plane may still have trouble passes government tests.

WSJ:   Abu Dhabi wants Citigroup (NYSE:C) to tear up a deal that would cost the kingdom money from investing in the bank.

WSJ:   GM says it will pay its US loans by June.

WSJ:   China Pacific Insurance raised $3 billion.

WSJ:   Deflation hit sellers of consumer electronics.

WSJ:   AT&T (NYSE:T) is working on adding wireless capacity to e-readers and toys.

WSJ:   Comcast (NASDAQ:CMCSA) is rolling out a Web-TV service.

WSJ:   McDonald’s (NYSE:MCD) will offer free WiFi.

WSJ:   Wholesale prices rose.

WSJ:   The government has to decide by year-end whether it will increase its bailout of Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE).

WSJ:   Potency issues force a recall of hundreds of thousands of H1N1 vaccines.

WSJ:   Multi-family home construction is still slow.

WSJ:   Wells Fargo (NYSE:WFC) said it will not sell assets to pay the government.

WSJ:   Best Buy (NYSE:BBY) results may show that retail earnings may be weak.

NYT:   Some observers believe that Goldman Sachs (NYSE:GS) has put quick profits above all else.

NYT:   SAC is being linked to stories about troubling actions at the hedge fund.

NYT:   The IRS says Citigroup (NYSE:C) can keep a $38 billion tax credit involved with an ownership change.

NYT:   Digital Sky Technologies, a Russian firm, is putting $180 million into Zygna, a creator of online games.

NYT:   Charges were dismissed against a former head of Broadcom (NASDAQ:BRCM)

FT:   The amount of distressed debt in the US is falling.

Bloomberg:   Gold buying by central banks is sending a “sell” signal.

Bloomberg:   Greece sold 5 billion euro in bonds due in 2015 to five banks.

Douglas A. McIntyre

Playboy (NYSE:PLA) may outsource many of its publishing operations.  (WSJ)

Cadbury (NYSE:CBY) may counter the Kraft (NYSE:KFT) big by making an offer for Kraft’s confectionery business. (NYPost)

Palm (NASDAQ:PALM) board member Rajiv Dutta may join Elevation partners, Palm’s largest shareholder. (Bloomberg)

Freddie Mac’s (NYSE:FRE) losses may grow because of the bankruptcy of Taylor, Bean & Whitaker (NYTimes)

British Air may buy Qantas (FT)

GE (NYSE:GE) Capital’s losses may fall.  (Reuters)

Douglas A. McIntyre

Reuters:   Banks have been asked to give their TARP repayment plans to the government.

Reuters:   Rich people are likely to shop early this year.

Reuters:   The US pitched the F-35 fighter to Israel.

Reuters:   Home sales hit a 2 1/2 year high.

Reuters:   Hedge funds may get $11 billion frozen at Lehman.

Reuters:   Businesses are still cautious on borrowing.

Reuters:   Murdoch’s News Corp (NYSE:NWS) may face trouble if he blocks Google (NASDAQ:GOOG) News.

Reuters:   A falling Chicago Fed index is a bad sign for the economy.

WSJ:   One in four US homeowners is underwater.

WSJ:   HSBC (NYSE:HBC) is telling individual investors to move their gold out of its New York vault to make room for institutional clients.

WSJ:   Some government factions are urging pay czar Ken Feinberg to ease up on AIG (NYSE:AIG) pay restrictions.

WSJ:   Early numbers show electronics sales may be good this holiday but apparel sales will not be.

WSJ:   Fitch cut the rating of Mexico’s debt.

WSJ:   The Organization for Economic Cooperation and Development said rich nations are moving out of a recession but that stimulus spending was still necessary.

WSJ:   The EU will coordinate will coordinate national spending deal with GM’s Opel.

WSJ:   Banks have trillions of dollars in debt due over the next few years.

WSJ:   Google (NASDAQ:GOOG) bought display ad start-up Teracent.

WSJ:   China is slowing bank lending activity.

WSJ:   Hershey’s (NYSE:HSY) bid for Cadbury could hurt the company financially.

WSJ:   Upscale auto companies are doing well in China.

WSJ:   Playboy (NYSE:PLA) will outsource much of its magazine’s  business operation.

WSJ:   Amazon (NASDAQ:AMZN) and Wal-Mart (NYSE:WMT), offering big discounts, are fighting over the future of retailing.

NYT:   Many analysts believe that customers are saving money to spend the day after Thanksgiving.

NYT:   A public database could be used to help monitor drug safety.

FT:   The IMF chief said an early exit from stimulus packages could cripple the recovery.

FT:   The EU dropped its antitrust probe of Qualcomm (NASDAQ:QCOM).

FT:   S&P raised issues over the health of many banks that will have to raise more money.

FT:   China’s rules on derivatives are hurting banks.

Bloomberg:   China’s five largest banks gave regulators plans for them to raise capital.

Bloomberg:   The Fed ask stress tested bank to set schedules for pay back TARP.

Douglas A. McIntyre

Abercrombie & Fitch Co. (NYSE: ANF) is trading higher by 6% despite poor sales.

RINO International Corp. (NASDAQ: RINO) is hitting new 52-week highs after strong earnings.

Cadence Pharmaceuticals Inc. (NASDAQ: CADX) is down 6% after the FDA extended the review for its painkiller Acetavance.

Telestone Technologies Corp. (NASDAQ: TSTC) is the top percentage gainer.

Playboy Enterprises Inc. (NYSE: PLA) is up again 8% after yesterday’s takeover chatter.

Nordstrom Inc. (NYSE: JWN) is down about 5% on soft earnings despite raised guidance.

You can join our open email distribution list which goes out several times per week to be notified of key merger news, key analyst calls, top early morning day trader alerts, along with news of IPO’s, key offerings, guru investor data on Buffett and others, mergers, and more.

JON OGG