Is Ziff Pricing Itself Out of a Divestment?
With the auction on the company’s enterprise group stalled, and possibly busted, Ziff Davis could be pricing itself out of potential sales on its gaming and consumer/ small business group, sources said this week.
First-round bids on Ziff’s gaming and consumer/small business groups, which are being marketed separately, were due to the company’s advisor, Lehman Brothers on January 19. “I’m not sure how many people bid,” said one source, “but I do know that their price expectations are over the top. They have Internet-like valuation expectations for the gaming group, even though print still encompasses the majority of the operations.”
The source said the company is looking to make 3X-revenue on the gaming group alone, which has annual revenues in the mid-$20 million-range and break-even earnings. “Asking for 3X-revenue on a company that’s breaking even is very, very over-the-top,” said the source.
Ziff Davis’ owners Willis Stein & Partners confirmed last July that the company was for sale, following months of speculation. The enterprise group, which generates more than $50 in annual revenues and is believed to be the most robust of the company’s three publishing segments, was the first to be marketed. In November, it looked as though the company had a deal in place to sell the group, which includes eWeek, Baseline and CIO Insight and their complementary Web sites, to the Quadrangle Group. But Quadrangle has since cooled on its interest. Apprise Media, CMP and MTV’s publishing unit have also been fingered as potential bidders on one or more of the groups.
One source said the auctions on the gaming group, which includes the company’s 1Up network, and consumer/small business group, comprised of PC Magazine and other assets, could be headed the way of the enterprise auction if the company doesn’t rethink its pricing. “I think they need to be careful,” said one M&A source. “Busted auctions occur when your price expectations are unsupported by the business and we’ve seen that happen with Cygnus and other companies.”
Another M&A source believes the complexity of selling the company in three parts could hurt Willis Stein’s chances of making a strong return on its investment. “I think that’s going to be a real challenge,” said the source. “Breaking it up was not a good approach, but in terms of its size, there are very few strategics that would have interested in it.”
Willis Stein paid $780 million for Ziff Davis in April 2000. The company posted revenues of $38.8 million in the third quarter of last year, a decline of $1.4 million compared to the previous year. While the company’s online revenues increased 32 percent for the quarter, print revenues, excluding closed publications, decreased 14 percent.
Consolidated EBITDA increased $4.4 million for the third quarter, compared to $1.5 million for the third quarter of 2005. The increase was primarily due to growth in the company’s online businesses and the absence of losses from closed publications and cost reductions, the company said.