Corporate Restructuring: ZDNet’s TrackingStock to Go It Alone

Ziff-Davis Inc.’s ZDNet tracking stock has outlived its usefulness largely because the company no longer has the business mix that once made it a good value-creating idea. But in an unusual twist, the tracking stock will emerge as the survivor of a second stage of the company’s restructuring. ZDNet shares represented the Ziff-Davis interest in Web-distributed technology content, commerce, and services. That became the firm’s only business when Ziff-Davis sold its computer magazine business last year. As a result, Ziff-Davis, through a technical merger with a newly formed subsidiary, plans to eliminate the tracking stock, resuscitate it as the ordinary common stock of the surviving company, and adopt the ZDNet name. Softbank Corp. of Japan will own about 45% of ZDNet’s fully diluted shares after the conversion of the tracking stock. ZDNet began as a provider of online versions of Ziff-Davis magazines but subsequently expanded its content beyond the initial scope. Tracking stocks are designed to provide separate valuations for parts of diversified companies that may draw different multiples from investors because they grow faster or have better prospects than the company as a whole. Tracking-stock values are attributable only to the earnings, assets, dividends, and other financial characteristics enjoyed by the businesses they represent.