Ziff-Davis Agrees to Sell Publishing Unit for $780 Million

Private equity firm Willis Stein & Partners is buying Ziff-Davis Publishing.
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Updated from 9:25 a.m. EST

Taking a bold step to shed more of its non-Interent properties,

Ziff-Davis

(ZD)

said Monday that it would sell its Ziff-Davis publishing unit for $780 million in cash to

Will Stein & Partners

, a private investment firm.

Ziff-Davis Publishing

is the largest computing and Internet magazine publisher and the sixth-largest magazine publisher in the U.S., with more than 80 worldwide publications aimed at consumer and business-to-business markets. Its publications include

PC Magazine

,

PC Week

,

PC Computing

,

Inter@ctive

and

Yahoo! Internet Life

.

Ziff-Davis said the deal would close in the first quarter of 2000.

"We selected Willis Stein & Partners to be the new owner based on a number of factors, including their commitment and resources that will enable them to leverage Ziff-Davis Publishing's global brands and marketing platforms," Eric Hippeau, chairman and chief executive of Ziff-Davis, said in a statement. "This is a major step toward our goal of unlocking value for our shareholders."

In midday trading Monday, Ziff-Davis' shares fell 1 3/8, or 8%, to 16 7/8. (Ziff-Davis closed down 1 3/16, or 7%, to 17 1/16.)

Ziff-Davis was spun off by

Softbank

, a Japanese technology venture firm, in 1998. Since then Ziff-Davis began a transformation from a publishing company with more than 80 publications worldwide to an Internet technology media source.

"All the cash from these transactions will be used to reduce debt," said Robert Borchert, Ziff-Davis director of investor relations. "If you add up the cash from these transitions, we will be debt free at the end of the first quarter."

The new year could also bring the sale of a couple of its few remaining assets. Next for sale might be

ZDNet

(ZDZ)

, its tracking stock, an Internet site with information e-commerce and technology. "ZDNet could be sold or remain an independent asset," Borchert said.

Microsoft

(MSFT) - Get Report

co-founder Paul Allen has a minority stake in ZDNet through his

Vulcan Ventures

business.

Willis Stein said it would use Ziff-Davis Publishing to introduce other special-interest magazines and acquire additional magazines.

James D. Dunning Jr., the former chairman and chief executive of

Petersen Publishing

, will become chairman and chief executive of

Ziff-Davis Holdings LLC

and chairman of Ziff-Davis Publishing. Dunning is known for aggressive acquisitions and new magazine launches under Stein, that transformed Petersen Publishing into the largest special interest magazine publisher in the U.S.

"We will do with it what we did with Petersen," Dunning said in an interview. "When we bought it (in 1996) there were 70 publications, two years later we had 160. We bought it for $443 million and sold it to

EMap

(in 1998) for $1.2 billion."

"We are thrilled to be partnering again with Jim Dunning and building upon the success we achieved at Petersen Publishing," Avy Stein, managing partner of Willis Stein & Partners, said in a statement.

Looking to the future, Dunning said, "The strategy will be to go to where the customer takes us."

Responding to the possibility that the customers will lead the new company back to the Internet, Dunning said. "There's no problem going to the Internet. We have great relations with ZDnet."

Stein added, "It's the branding. Strong brands go across different media."

Ziff-Davis'

Computer Shopper

publication and its ownership interest in

Red Herring

are not included in the transaction.

At the closing of the deal, ZDNet will retain the right to use Ziff-Davis Publishing's content online for a fee for five years.

ZDNet's were off 1 3/8, or 6%, at 21 1/2 in midday trading Monday. (ZDNet finished down 5/8, or 3%, to 22 1/4.)

"The pressure that you see in ZDNet will evaporate as they remove the tracking stock, ZD," said Tonia Pankopf, a

Goldman Sachs

analyst who rates the stock a trading buy, equivalent to a near-term buy. Pankopf thinks the ZDNet shares will rise more than 25% in six to nine months, as it shakes loose from the "hard" assets. Goldman Sachs was an underwriter for ZDNet.

Ziff-Davis'

Computer Shopper

publication and its interest in

Red Herring

are not included in the transaction.