Ziff Davis struggles to stave off bankruptcy

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Ziff Davis Media Inc. reached an agreement with its bondholders last week that may keep the struggling publisher of PC Magazine and eWeek out of bankruptcy court. To avoid bankruptcy proceedings, Ziff Davis needed to secure agreements with bondholders representing 95% of the aggregate principal amount of $250 million of senior subordinated notes due in 2010. On Wednesday, the company announced that bondholders representing 95.1% had formally accepted the terms of the company’s restructuring plan.

Under that plan, the senior notes would be reduced by about $155 million. Additionally, Ziff Davis’ cash debt service requirements over the next several years would be reduced by more than $30 million annually.

Deal not finalized

At press time, however, Ziff Davis refused to declare that it had successfully sidestepped bankruptcy court. It said only that it was extending its offer to exchange cash and new securities for the senior notes until Friday, Aug. 8.

"The deal is not finalized," cautioned Aimee Levine, Ziff Davis’ VP-corporate communications, who added: "We are not ready to announce a deal. Bob [Callahan, chairman-CEO] and Bart [Catalane, COO-CFO] are very conservative."

After experiencing the dramatic plunge in the tech advertising market, Ziff Davis has learned to take nothing for granted. The company has been on a roller coaster ride since 1994, when the Ziff family sold the company to Forstman Little & Co., which in turn sold it to Softbank Corp. in 1996. Softbank built a massive tech media company that included PC Magazine and a host of other print titles, ZDNet and the Comdex trade show.

A mountain of debt

In amassing this company, however, Softbank collected a mountain of debt. It sold the company piece-by-piece in 1999. Willis Stein & Partners acquired the print portion for $780 million in a leveraged buyout.

The debt became crushing with the collapse of the tech ad market. Through May of this year, b-to-b ad spending in the categories of telecommunications (-52.7%), computers (-26.5%) and software (-22.8%) tumbled compared with the same period last year, according to Business Information Network figures.

Despite the moves undertaken by Ziff Davis, its debt remains formidable. The company has cut its staff and shuttered several publications, including Interactive Week.

"They’ve pretty much eliminated all the products that were marginal," said Robert Crosland, managing director of AdMedia Partners Inc. "They’ve done everything that you can do."

No tech media company has escaped the downturn unscathed. A sampling of the financial woes:

• Privately held International Data Group, which publishes PC World, has been battered by ad page declines. The company trimmed staff at Computerworld and shuttered The Industry Standard.

• CMP Media, which is owned by United Business Media, saw its revenue decline 37.8% to $212.9 million in the first half of this year, from $342.5 million in the same period last year.

• Publicly traded Penton Media, which owns Internet World, is in danger of being delisted by the New York Stock Exchange; its stock closed at 52 cents a share last Thursday.

Industry observers see Ziff Davis’ restructuring, if it receives final approval, as a good move that will likely give the company financial breathing room to launch new titles. The company has a new focus on videogame titles, which cost less to operate than information technology publications such as eWeek or PC Magazine, said Sam Whitmore, editor of

Media strategists characterize Ziff Davis’ remaining b-to-b titles as strong. "PC Magazine is still considered the bible, even today with all the troubles Ziff has had," said Lynne Langlois, associate media director for media-buying agency Carat USA, Newton, Mass.

And industry observers view Willis Stein’s continued investment in Ziff Davis as a positive sign. "I think this is a clear reflection of how strongly Willis Stein believes in the future of Ziff Davis," Crosland said. "They are clearly leading with their wallet."

Hurdles remain

Nonetheless, if indeed Ziff Davis has staved off Chapter 11 for now, hurdles remain for the company. It still has significant debt, and the tech ad market has to bounce back for the restructuring to yield positive results.

"If high-tech advertising rebounds, they’ll be fine," said Wilma Jordan, CEO of Jordan, Edmiston Group Inc.

How strongly the tech ad market returns is the several-hundred-million-dollar question. There is faith that it will come back, but little belief that it will be as strong as it was during the Internet boom years.

The market has fundamentally changed, said Seth Alpert, managing director of AdMedia Partners. "The PC industry has become a commodity industry."

As publisher of PC Magazine, Ziff Davis cannot avoid the negative fallout from this situation. "They’ll probably still be in business," said Alpert, a former Ziff Davis executive. "They’ll be a much smaller company. I think they’ll clearly go from being a dominant player to a lesser player."

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