August 16, 2007
-- Ziff Davis Media has finally hit the wall.
The embattled tech media company - which has teetered on the brink for over a year as it tried to sell itself in pieces to get out from under a mountain of debt - said it skipped an interest payment due yesterday and was entering into negotiations with debt holders to restructure about $390 million in debt.
"Operationally, we're in very good shape, but we still have debt that was put on the company when it was a very different scale," said newly installed CEO Josh Young, who earlier this month took over from Robert Callahan, who remains chairman.
"It's about correcting a capital-debt structure," said Young, who added that he could not speculate on what terms would be offered to debt holders.
Said one industry observer yesterday, "They are playing hardball with their lenders by withholding payments. It was inevitable. They were in a cash crunch and it was just a matter of time."
The company said it has retained Alvarez & Marsal to handle the restructuring. Alvarez & Marsal have done work in the past for companies such as Timex, DoubleClick and Levi Strauss.
In the most recent fiscal year ending Dec. 31, 2006, Ziff Davis Media had $181 million in revenue and cash flow of $27.1 million. The company also said it was going to delay filing its quarterly fiscal report for the period ending June 30.
As it has struggled to pare down its debt load, Ziff Davis Media managed to sell just one of its three divisions, the Enterprise Group, which was sold on July 31 to Insight Venture Partners for $150 million. The group includes Baseline, CIO Insight, eWeek and related Web sites.
The company, which once employed over 1,200 people, now has a staff of around 290 and is down to three magazines, including PC Magazine, Electronic Gaming Monthly and Games for Windows. It also owns 15 Web sites and a conference business.
Over the years, Ziff Davis Media has closed more than 10 magazines, including Inter@ctive Week, Yahoo! Internet Life and ExtremeTech, as it repositioned itself to focus largely on digital content.
The founding Ziff family had bailed out in the mid-1990s, selling it in pieces to Lazard Freres and Japanese conglomerate Softbank, which at the time paid $2 billion for the company, when the heirs to Willaim Ziff decided they'd rather put their money into the Ziff Brothers Investments hedge fund than carry on as third-generation publishers.
In 2000, Willis Stein & Partners, a Chicago-based investment firm, purchased the company for $700 million, but the timing could not have been worse.