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Forbes Magazine
A Foul-Smelling Business
Tuesday November 26, 2:54 pm ET
By David Armstrong
Malcolm Glazer's Zapata Corp. relies on an oily, bony fish for growth. What's he really fishing for?
As fish go, menhaden aren't much to look at. Short, fat, oily and full of bones, they are inedible, foul-smelling, and often covered in parasites. But grind up 628,000 tons of the creatures, as Houston-based Omega Protein did last year, and you can sell the fish meal and oil to livestock farmers and food companies for $98.7 million, and eke out a $4 million profit.
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This low-margin affair is the sole remaining business of Zapata Corp. (NYSE:ZAP - News) , the onetime oil and gas company cofounded by George H.W. Bush, and now 47% owned by the family of Forbes 400 member Malcolm Glazer (net worth: $750 million). After disastrous forays into restaurants, the Internet (remember the $1.3 billion bid for Excite.com?) and junk bonds, Zapata's 61% stake in Omega Protein accounted for virtually all of the revenue and net income Zapata booked last year.
It's been a rough ride for shareholders, and now they've got more to worry about. In November Zapata announced plans to spend $14 million to buy back 500,000 shares, or 21% of outstanding, at $28 each. That was at a nice $5 premium over the previous price, but roughly half the liquidating value of the company, which has a $60 million equity stake (14.5 million shares at a recent $4.17 each) in Omega Protein, $87.5 million in cash and no debt.
The offer arrived just months after Zapata announced it was looking at "strategic alternatives" for its fish meal business. The buyback offer, coming without any disclosure by insiders of their intentions for their only business, is "a cynical maneuver designed to catch people napping," says Thomas McKay of investment firm Simplon Partners. He believes the Glazers will wait for the dust to settle before taking Omega Protein private at a lowball price. Getting access to Omega Protein's $29 million in cash and $30 million annual operating income (earnings before interest, taxes, depreciation and amortization) should boost the value of Zapata's shares far above the $28 offer--a boon for Zapata's largest stakeholder.
The Glazers wouldn't return calls, but they could argue that Omega isn't even worth book value. Soybeans are now giving fish meal a run for its money in the protein business. Whatever happens to the menhaden, Zapata has been kind to the Glazers. Half of the $4 million the company spends in overhead expenses goes to salaries for members of the Glazer family. Malcolm Glazer, who is owner of football's Tampa Bay Buccaneers, has paid himself $1.5 million a year in salary and bonuses for the past three years--which will continue for the next four years even though he retired as chairman in March. Something fishy here? |
