Comdex sale nears; New York owner focusing on Internet

Carrie Kirby

Monday, Jan. 31, 2000 | 11:21 a.m.

Ziff-Davis, best known as a computer-magazine publisher headquartered in New York and as the owner of the Comdex trade shows, is reinventing itself as a Web-only technology resource headquartered in San Francisco.

Having sold off nearly all of its non-Internet divisions, Ziff-Davis now plans to make ZDNet, its San Francisco Internet arm, into a stand-alone company.

Ziff-Davis then plans to sell off its remaining business, trade-show producer ZD Events, and be absorbed by the new company. ZD Events should be sold by the second quarter of this year.

"The company can be recognized for what it is, a top-20 Internet property," said Mandana Hormozi, an analyst at Lazard Freres, an investment bank headquartered in New York.

Industry watchers were not surprised by the development announced Friday. "We've expected this to happen for at least six months," said Bob Hiler, an analyst at Credit Suisse First Boston.

The transition cannot take place until ZD Events, whose centerpiece is the Comdex technology conference business, is sold off, which Ziff-Davis expects to do in the second quarter. Fall Comdex is the largest trade show in Las Vegas, annually attracting some 200,000 people.

Ziff-Davis has already agreed to sell its magazine publishing and education units. It will use the money from these transactions -- along with the already-complete sales of its interest in cable TV channel ZDTV and its market research unit, ZD Market Intelligence -- to cover its debts of nearly $1.2 billion. Most of the remaining cash will be distributed to Ziff-Davis shareholders in a $5-per-share cash dividend. Anything left over will belong to ZDNet.

"Ziff-Davis, its cash and its retained interest simply becomes ZDNet," said Dan Rosensweig, who is and will remain chief executive and president of ZDNet.

Since last March, ZDNet has been publicly traded separately from Ziff-Davis as a tracking stock -- shares tied to the financial performance of a particular portion of a company's business. Under the symbol ZDZ, the tracking stock significantly outperformed the regular Ziff-Davis shares on the New York Stock Exchange.

Analysts expect ZDNet as a stand-alone company to perform even better once the sales of other divisions are resolved.

"There's been a cloud over the stock because it's been a tracking stock," Hormozi said. Another hindrance to the stock's performance has been uncertainty about how much ZDNet depended on its parent company, she said.

Softbank Corp., the Japanese company that owns 70 percent of Ziff-Davis, has been systematically divesting itself of ZD properties as part of Chairman and CEO Masayoshi Son's strategy of focusing on the Internet, analysts said. In the past year, Softbank has also spun off its own publishing, commerce, technology consulting and finance businesses. Softbank also owns stake in Internet players such as E-Trade and Yahoo and is a major investor in Japan's Internet industry.

Softbank will be the majority shareholder of the new company, with a 45 percent stake.

Ziff-Davis' well-known magazine division, which publishes such titles as PC Week and Yahoo Internet Life, is being sold to Willis Stein & Partners, a Chicago-based investment firm. The $780 million cash transaction is expected to close in the first quarter; ZDNet will retain the right to use the magazines' content for a five-year period in exchange for royalty payments, Rosensweig said.

"We feel as an independent company, we will be able to accelerate our growth on a global basis even faster than we've been growing," Rosensweig said, adding that the change puts ZDNet on a more equal footing with pure Internet competitors such as Cnet. ZDNet currently employees 450 people.

ZDNet's collective Web sites were ranked the 16th most popular Internet property in December by Media Metrix, a Web ratings company. Cnet ranked just one slot higher at 15.

ZDNet's tracking stock closed at $27.88 Friday, down $2.19, and Ziff-Davis' stock closed down 94 cents at $17.88.