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Technology Stocks : ZD Inc., Ziff-Davis (ZD) -- Ignore unavailable to you. Want to Upgrade?

To: Gabor who wrote (840)	12/6/1999 7:46:00 PM
From: Maverick	Read Replies (1) \| Respond to of 855

ML: Events sale will gen ~$1B.ZDZ shares owned by ZD may be distr. to existing ZD shareholders Excerpts of Merrill Lynch Research 12/6/99 Investment Highlights: ú ZD announced this morning the sale of ZD Publishing excluding Computer Shopper to Willis Stein, a private equity firm, for $780MM in cash. Deal to close in Q1 of 2000. ú ZD pegged the sale multiple at 8X ?99 EBITDA, which was somewhat below our expectations. ú ZD will receive $1,263MM in cash in total from the sale of ZDMI, ZD Education, ZDTV and ZD Publishing, thus canceling out its debt. ú Management indicated that the sale of ZD Events is still on track and will likely generate about $780MM to $1BN in proceeds. ú We continue to believe that ZD shares are worth $20-24/sh assuming that ZD Events will be sold at 9-10X ?00E EBITDA of $95.3MM and adding ZD?s stake in ZDNet (ZDZ Not Rated $21 ¬) which is worth $1.3BN at current market value. ú ZD shareholders will likely get cash and some form of a public security that represents the ZDNet business. Fundamental Highlights: Computer Shopper will be run by ZDNet after the sale of ZD Publishing. What Has Changed? ZD made the long-awaited announcement this morning of the sale of its ZD Publishing unit excluding Computer Shopper for $780MM in cash to Willis Stein. Management stated that the sale price equates to about 8X ?99 EBITDA, a multiple that was below our expectations. However, as ZD fetched higher prices for its ZDTV, ZD Education and ZD Market Intelligence units that we had expected, we still think ZD shares are worth $20-24/sh in the private market. According to management, the sale of its ZD Events unit is still on track and will likely fetch a price between $780MM to $1BN. The sales and marketing functions of Computer Shopper will continue to be run by ZDNet once the sale of ZD Publishing is completed, but ZD Publishing will handle Computer Shopper?s publishing functions (e.g. printing and distribution) on a contractual basis. We estimate that Computer Shopper will have about $60MM in revenues and $15MM in EBITDA (before $1.5MM of bad debt expense) this year. We think that it was smart for ZD to separate out Computer Shopper as the business is migrating on-line and thus difficult for a potential buyer to value. On the other hand, it ties in well with ZDNet and is still very cash flow generative. ZD Publishing will be headed by James Dunning, Jr. under Willis Stein?s ownership, the same team that achieved success with Petersen and later sold it to EMAP. ZD and Willis Stein amended the royalty agreement between ZD Publishing and ZDNet such that ZDNet will retain the right to use ZD Publishing content online exclusively for 5 years as opposed to 10 years previously. ZD will receive $1,263MM in cash in total from the sale of ZDMI, ZD Education, ZDTV and ZD Publishing, effectively canceling out its debt. Management does not expect any tax leakage due to its NOL and high tax basis. What is left include ZD Events, ZD?s stake in ZDNet and SmartPlanet (ZD?s new consumer-oriented on-line education unit). We expect that ZD Events will be sold and the ZDZ tracking stock structure will be unwound through one of the following 3 mechanisms: (1) distribution of ZDZ shares owned by ZD to existing ZD shareholders; (2) conversion of ZDZ shares into ZD shares, or (3) a merger of ZDZ and ZD, i.e. conversion of ZD shares into ZDZ shares. Outside investors, possibly including ZDNet, will likely be brought into SmartPlanet.