Concerning the article "Sell ZDZ, Buy Ziff-Davis"
fnews.yahoo.com
I submit Schneider has it wrong. In fact, he has it all wrong.
As I read the little white book Ziff-Davis sent out 3/11/99, Ziff-Davis has two tracking stocks. One is called ZD Stock which trades under the symbol ZD and the other is ZDNet Stock which trades under the symbol ZDZ. Both are common stock holders of Ziff-Davis Inc.
Granted, ZD has a retained interest in ZDNet, but it is impossible to show that retained interest in the consolidated statements of Ziff-Davis without double counting. Thus that so called 'retained interest' is more a psychological factor than financial.
In addition, the downside of that "retained interest" is that it is decreasing. In fact, since the IPO, ZD stock holders have given up 29% of "retained interest". That's 14% to ZDNet stockholders plus another 14% as options to Ziff-Davis insiders and about 1% for the purchase of Gamespot. Now that you see how Ziff-Davis is using ZDNet stock as currency that "retained interest" provides little benefit to ZD stockholders. (see sec.gov for details on options and Gamespot).
After looking at the combined financial statements in that little white book, it is clear why ZD stock is falling. In a nut shell, ZD stock holders haven't gained 86% of ZDNet as they have been lead to believe, but rather lost 29% of ZDNet as described above. Recall, they held 100% of ZDNet before the IPO. It dumbfounds me MS would upgrade ZD, ML had it right!
In addition, consider there are 103 million shrs ZD stock outstanding. While ZD stock represents the lions share of Ziff-Davis, ZD revenues were flat in 1998 and are predicted flat in 1999. Now take away the fastest growing revenue component of Ziff-Davis, ie. ZDNet, and keep the same number of shares, the value of ZD stock has depreciated. And its stock price reflects that.
In contrast to ZD, ZDNet's earnings, although much less than ZD's, have been increasing over the last three years. If they continue to increase, ie. $16 million in 1996 to $56 million in 1998, there is a good chance ZDNet will be in the black in 1999. On the other hand, ZD lost about $70 million in 1997 and 1998 and we can expect the same for 1999.
However, there is salvation for ZD stockholders but it rests with the exchange of ZD stock for ZDNet stock. As I understand things, if ZDNet marketcap exceeds 65% Total Market Capitalization, ZD stock can be exchange for ZDNet stock. Thus, instead of selling ZDZ stock to buy ZD stock as shit head suggests, which would drive ZDZ stock price lower and really wouldn't push ZD stock higher because of weak ZD revenues, the better option would be to buy ZDZ stock which goes with the flow (ie, internet valuation and revenue based market) and take the ZDNet stock exchange to realize your gains.
In other words, you help ZD by helping ZDZ. To do otherwise, would drive both ZD and ZDZ against the flow of market forces as well as drive both to basement bargain prices. And we have see that already. As long as ZDZ was going up, ZD was following to higher levels.
IMHO, the Total Market Capitalization Trigger flies in the face of the intent of ZDNet stock which is to reflect the performance of ZDNet; ie, a reset would dilute ZDNet stock but that is the rule Ziff-Davis has chosen to play by. |
