[off topic]Rocker partners
13F Advance: Rocker Buys Internet Wanna-Be Zapata
06/24/98
Federal Filings Newswires
(Copyright (c) 1998, Dow Jones & Company, Inc.)
FORM TYPE: 13F
QUARTER ENDED: 03/31/98
FILER: ROCKER PARTNERS , L.P.
ISSUER: ZAPATA CORP.
SYMBOL: ZAP
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Rocker Buys Stake In Internet Wanna-Be Zapata
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Fish Processor Swimming Upstream To Join Technology Big Leagues
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Report From the Federal Filings Investment Research Group
June 24, 1998
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MANAGER CONTACT: David A. Rocker
New York, NY
(212) 397-1220
INVESTMENT PHILOSOPHY: HEDGE
EQUITY PORTFOLIO SIZE: $128.6M NUMBER OF STOCKS: 31
Rocker Partners ' equity management style focuses on stock
selection based on fundamental, bottom-up analysis. Being compensated
on absolute performance, rather than relative performance, Rocker's
primary emphasis is capital preservation. Consequently, the firm
refrains from making market calls, taking positions only when the
potential reward appears substantially greater than the risk to capital.
For long positions, Rocker seeks relative value. Equity holdings are
generally characterized by strong balance sheets featuring little debt
and low price-to-earnings, low price-to-cash flow, and low price-to-book
ratios. Short positions usually reflect the obverse.
FOCUS: Zapata Corp. (ZAP)
Recent Price: $10.13 1997 EPS (E): $0.80*
52-Week H/L: $15-5 1998 EPS (E): $0.90*
Price/Book: N/A 1997 P/E (E): 12.7x
L-T Debt/Cap: 7.8% 1998 P/E (E): 11.3x
Div/Yield: nil 5-Yr EPS Gr. (E): 15.0%*
Shares Out: 23.24M S&P 500: 1,119.48
*Source: Zacks Investment Research
Rocker Partners was fairly subdued in the first quarter, with
new positions in Syquest Technologies Inc. [SYQT -- 3,335,000 shares
purchased] and Zapata Corp. [ZAP -- 340,000 shares], the elimination of
its stake in Royal Oak Mines Inc. [RYO -- 3,820,400 shares sold] and the
sale of 142,500 shares of Apache Corp. [APA] Rocker's only major
transactions for the quarter.
Zapata's stock price more than doubled in the first quarter
from just under $7 a share in early January before ending the quarter at
just over $14 a share. A good portion of the rise occurred between Jan.
26 and 28 after the company announced that it planned an initial public
offering of its Omega Protein Corp. (OME) subsidiary. Recently, the
company's stock has settled back a bit to $10.13.
The lone analyst following Zapata predicts that the firm will
earn 80 cents per share for the fiscal year ending in September and 90
cents per share for fiscal 1999, according to Zacks Investment Research.
In addition, the analyst sees a five-year earnings per share growth rate
of 15% for Zapata.
Many investors were unaware of Zapata until recently.
Originally an oil and gas company founded by former U.S. President
George Bush, the company moved into marine protein and food service
operations. Then, in an abrupt change, in April the company started its
focus on the Internet by buying the webzines Word and Charged as well as
announcing a standing offer to buy websites from companies.
In a move that caught most everyone by surprise, on May 21,
Zapata offered to buy Excite Inc. (XCIT) for $72 a share in Zapata
stock. Although initially the offer was not taken seriously, some
market experts quoted in the aftermath believe that Zapata should not be
underestimated in its attempts to enter the Internet market.
However, although market experts believe that Zapata may be
successful in its Internet venture, in doing so the company has turned
away from its established money-making departments.
Zapata is owned by the Glazer family, with father Malcolm as
chairman of the board while son Avram is president and chief executive
officer. The family is known for picking profitable businesses in such
diverse areas as real estate, restaurants and the National Football
League's Tampa Bay Buccaneers, purchased in 1995.
In late 1994 and early 1995, Zapata decided to exit the energy
business by divesting its remaining gas and oil assets. In fiscal 1995
the company sold its U.S. natural gas producing properties followed by
its natural gas compression, gathering and processing operations in
fiscal 1996. Finally, in fiscal 1997 Zapata sold its Bolivian oil and
gas assets and exited the energy industry.
In the early 1990s, Zapata diversified from its oil and gas
background into both fish and food processing. Zapata owns
approximately 60% of Omega Protein, formerly called Marine Genetics
while a wholly-owned subsidiary of Zapata. The company is the largest
processor, marketer and distributor of fish meal and fish oil in the
U.S. The fish meal is used mainly as an ingredient in animal feed for
poultry, pigs, cattle, aquaculture and household pets while the fish
oil is used mainly as an ingredient in margarine and shortening.
In November, Omega Protein bought 10 steamers and a processing
plant in the Chesapeake Bay area from American Protein Inc. for $14.5
million in cash. That same month, the company purchased six steamers,
five spotter planes and processing equipment from Gulf Protein Inc. for
$13.6 million in cash and the assumption of $884,000 in liabilities.
Omega Protein upgraded the facilities and integrated the other assets
into its existing operations.
Omega Protein completed its initial public offering in April,
selling 9.8 million shares of common stock, with over-allotments, for
$16 per share. Zapata received $76.7 million from its sale of 5.2
million Omega Protein shares.
In addition, Zapata also owns just over 40% of Envirodyne
Industries Inc. (EDYN), a maker of sausage casings; heat shrinkable
plastic bags and plastic films for packaging processed meat and cheese
products; disposable plastic cutlery, drinking straws and custom dining
kits; and thermoformed and injection molded plastic containers for
cultured dairy products, delicatessen, food service and other uses.
On April 27, flush with cash from the Omega Protein initial
public offering, Zapata announced plants to "initiate a major strategic
thrust to acquire and consolidate Internet and e-mail commerce
business." The move was a surprising one for Zapata and marked the
second significant change in the company's strategy in the five years
that the Glazers have owned the company. First from oil and gas
production to fish processing, and then to the Internet.
The first step on the move to become an Internet company was to
buy Word and Charged on-line magazines from Icon CMT Corp. (ICMT) for $2
million as well as enter into a multi-year services agreement with Icon
CMT. Although market experts say the magazines were very popular, Icon
CMT was unable to make a profit off of them.
Under Icon CMT, Word was a "lifestyle" magazine aimed at 18-34
year-olds while Charged focused on the extreme sports market. The
magazines were free and made revenues off of advertising. However, Icon
CMT reported that it could produce only "limited" revenues from the sale
of advertising and the publications were never profitable. Icon CMT
suspended the magazines' publication in March and laid-off all of the
employees. After buying the magazines, Zapata announced that it would
rehire the previously laid-off employees in an attempt to get the
venture jump-started.
Currently, the magazines are not publishing. Notices on both
web-sites state that the magazines will begin publishing again in the
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