[Posted on March 6, 2008 - 4:12 PM]
E-mail
del.icio.us
Technorati
Digg
In a phone interview on Thursday with Tech Confidential, Ziff Davis Holdings Inc. CEO Jason Young discussed the publisher's decision to file for Chapter 11 protection, defending the company's debt-for-equity swap agreement with senior bondholders. Young, 38, who joined the company in 1990 as an intern, was promoted from president of the consumer and small-business group at Ziff to CEO in August of last year. (Disclosure: I was an editor at PC Magazine from 1988 until 1993.) Highlights of my interview with Young follow. Visit TheDeal.com later Thursday for the full discussion. - Mary Kathleen Flynn
Why did Ziff decide to declare bankruptcy rather than seeking an out-of-court settlement with creditors?
Jason Young: The capital structure and debt load were created when it was a very different business and a very different time. We announced in August that we would finally correct that. Since then, we have been engaged with different classes of debt holders to put into place a capital structure that would appropriately support the business.
We announced two things yesterday: One, we have reached agreement with senior lenders to de-lever the debt down to $57 million and get a cash infusion of up to $25 million. Two, the junior class of lenders is not on board with this deal. It's not a disagreement over the notion of de-levering or over the concept of cash being provided. It's a disagreement over who gets what piece of equity on the other side.
Our bondholders will exchange debt for equity, and we tried to figure out who gets what percent of that going forward consensually. But the junior debt holders, who will own 11% under this plan, believe that number should be higher. We filed the Chapter 11 plan of reorganization so the court can settle the last question in a timely and efficient manner.
These are the important final steps in correcting a long-standing problematic capital structure that was created when the company was formed in 2000. The capital structure was appropriate at the time. But in 2000, tech magazines sold 160,000 ad pages; in 2007, they sold 30,000. Seventy-five percent of that market evaporated.
Wouldn't Ziff have benefited by moving earlier to overhaul its capital structure?
In the past the expectation was that as the digital business grew, there would be an opportunity to grow back into the capital structure that was put in place. But even though digital growth happened at -- and even above -- the pace we expected, the print business just kept on declining. By summer, when I became involved as CEO, it became clear to the board and myself that we weren't going to grow back into that capital structure any time soon.
Much of your career has been in sales and business development at Ziff. Do you have the experience to turn the company around and lead it out of bankruptcy?
I'm the right person to lead the company. I've been at the company a long time. My management team and I really were the individuals responsible for building the digital platform that exists today in our company. We saw the digital platform monetized already in the sale of our business-to-business division for $150 million. The plan going forward is based on continuing to operate, understanding how to leverage our position to keep expanding the digital footprint and digital revenues.
Do you expect any problem winning approval for your prenegotiated agreement?
The question at hand is not what a restructured business looks like going forward -- it's who gets what percent of the equity. I don't think the court ruling changes the end game for our business. We emerge with a de-levered business, cash to operate and a capital structure going forward that supports and fits where the company wants to go.
See March 5 story from TheDeal.com
See March 5 press release from Ziff Davis
See Ziff Davis' bankruptcy petition filing
