CEO of Japanese Software Distributor Says Deal to Buy Ziff-Davis Publishing Is Close


A maverick Japanese software distributor said Thursday he is close to reaching a deal to acquire Ziff-Davis Publishing Co., the world's largest publisher of computer and technology magazines.

Speaking to reporters in Tokyo, Masayoshi Son, chief executive at software distributor and publisher Softbank Corp. said that "only a few obstacles remain" to a deal.

Bloomberg Business News reported that the two companies signed a letter of intent Sunday and expect to close the sale within a month, according to an executive close to the discussions.

But Son said details to be negotiated included the price.

Ziff-Davis, which publishes PC Magazine, PC Week and other influential publications, was acquired last December by New York investment company Forstmann Little & Co. from the Ziff family for about $1.4 billion. The Ziff family kept a 6% stake that it is reportedly prepared to sell to Son.

Softbank also made a bid for the publisher at the time but was outmaneuvered by Forstmann because of concerns over the highly leveraged company's ability to finance the deal.

"We lost out last time because we didn't have the cash in hand," Son said.

Son said he is confident he can pull together the money this time. He recently raised $500 million by issuing 12-year bonds at an attractive coupon rate of 3.5%. The company expects to raise an additional $630 million when it issues 2.8 million new shares in a public offering next month.

At PC Week, Ziff-Davis' flagship publication, reporters have been told that Forstmann's decision to sell did not reflect disappointment in the performance of the publications but the attractive offering price.

The Wall Street Journal on Thursday quoted unidentified publishing executives as saying that Softbank was prepared to pay as much as $2 billion for the publisher.

That price, if accurate, would represent a rich premium over what Forstmann paid, a price that many industry observers believe was already too high. Forstmann, which had previously insisted that it was in the business for the long-term, had imposed tight budget controls on Ziff-Davis' once free-spending editorial staff in an effort to cut costs.

The New York-based Ziff-Davis, with $700 million in revenues, had about 46% of the $1.7-billion U.S. computer magazine market last year. The computer publications business grew a healthy 10% last year selling an additional 13,000 ad pages over the year before.

Softbank's expanded publishing empire would fit neatly with its recent acquisitions in the trade show business. Last November, it paid $202 million for Ziff's Interop Expositions, an operator of computer trade shows and conferences. In February, it bought the rights to Comdex, the world's biggest computer trade show, for $800 million from the Interface Group.

Publishing and trade shows fit neatly together because advertisers of computer publications are typically the same companies that pay to participate in trade shows. But it is unprecedented for a Japanese concern to own a major American publisher and there are some concerns that questionable editorial practices in Japan could carry over to U.S. operations in a Japanese-owned publishing house.

In Japan, for example, reporters are often expected to give special play to stories about software products or companies--such as the Provo, Utah-based Novell Inc.--in which Softbank has a special interest.

Under Japanese control, the publisher could potentially pressure reporters to favor major exhibitors at its trade shows.

"There are potential conflicts of interests," said Dan Farber, editor-in-chief at PC Week. "Clearly we would have to make it clear that our editorial integrity is of utmost importance."

Questions have also been raised about Son's ability to manage his growing American empire.

Born in Japan of Korean ancestry, Son started his career in the United States. As a student at UC Berkeley, he worked with several professors to design software that became the basis for Sharp's pocket organizer, the Wizard. He also made a handsome profit importing arcade machines from Japan.

Returning to Japan in 1980, Son started a successful business distributing personal computer software at a time when personal computers were just taking off, and established a 50% share of that business. Over the past decade, Son has also built up a profitable publishing empire. More recently he urged Novell to set up shop in Japan and took a 26% stake in the business. Today Son has personal assets of $2 billion and his company posted sales last year of close to $1 billion.

But profit margins in his company's distribution business are falling, while its publishing division faces increased competition.

So Son is looking to America for growth. The move offshore won't be easy. A recent venture with Merisel and Phoenix Technologies to distribute software over CD-ROMs was a bust. And many believe Son purchased Comdex just as customers were beginning to grumble that it had grown too large and expensive.

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