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Strategies & Market Trends : The Thread Formerly Known as No Rest For The Wicked -- Ignore unavailable to you. Want to Upgrade?

To: changedmyname who wrote (48151)	6/3/1999 11:30:00 AM
From: michael j. brown	Read Replies (1) \| Respond to of 90042

did you see this yesterday? DNET (ZDZ) and ZIFF-DAVIS (ZD)Who says the market is efficient? Here's unarguable proof it is not. Ziff-Davis's ownership in its newly spun-off internet subsidiary is worth more than all of Ziff Davis assets, as valued by the market. Take a look at this: Company Stock Symbol Price Market Cap Ziff Davis ZD 22 1/4 2,250 ZDNet ZDZ 43 1/4 3,092 ZD's 85% of ZDZ 2,628 Ziff Davis spun off 15 percent of ZDNet yesterday, and retained the other 85% for itself. Based on today's price, ZD's 85% of ZDNet is worth $2.6 billion. But all of Ziff-Davis can be had for only $2.2 billion. Not only do you get an instant $400 million profit, you would own all the rest of Ziff-Davis, a publishing giant with $1 billion in revenue. Market capitalizations are supposed to reflect the overall value of the company, with stock prices being only a proportion share. The traditional arbitrage play here would be to short ZDZ and buy ZD in equal positions. As the gap closes, you are guaranteed to make money. But you can't short ZDZ since it is an IPO. Also, this type of arbitrage is usually done by big players, who can affect prices simply by the position they take. But they aren't present here. Even more interesting, Ziff-Davis has retained an unusual right to convert their ZD stock into ZDZ stock if the market cap of ZDNet exceeds 65% of ZD for 30 days. Right now it exceeds 135%. ZDZ is a tracking stock, which only means that it does not have a separate corporate existence, and the ZD board controls both entities. The Ziff-Davis board clearly saw that the market would put a higher multiple on ZDZ than on ZD, and if this keeps up, ZDZ will be diluted as ZD stock gets converted. You've got to give the Ziff-Davis board a lot of credit, they are creating shareholder value out of thin air.