IQ News: Zapata’s Master Plan Misfires

After aiming at the Web, Zapata won’t pull the trigger.
Fifty eight-year-old Michael Selzer plans some day to move his five-person online book-selling operation from his dining room to a more spacious barn behind his house in Great Barrington, Mass. Lavonne Luquis, a former newspaper editor, would prefer to write more articles for her San Francisco-based news site, LatinoLink, than spend the majority of her time on the phone selling ads. Across the bay in Union City, Scott Cole, 29, the founder of Web music store Mass Music, just wants a paycheck after going four months without one.
The ties that bind these disparate souls pushes beyond a boot-strapping, entrepreneurial spirit. Just a few weeks ago they were the target of investment magnate Avram “Avie” Glazer’s grand plan to buy up 31 sites and assemble them into a portal called Glazer, president and chief executive officer of Zapata Corp., a Houston-based company with investment interests that have ranged from fish protein supplements to the NFL’s Tampa Bay Buccaneers and an oil mining business started by George Bush, decided 10 days ago that the timing was all wrong to embark on a Web-themed buying spree. Numerous calls to Glazer regarding his decision were not returned.
But it appears the legacy of Avie Glazer and his ill-timed portal play will linger in the minds of capital-hungry entrepreneurs looking for a credible suitor. Cole, Luquis and Selzer will continue to operate their businesses independently as they had before, but they may have lost out on more than a potential cash infusion–they may have squandered precious time and missed out on other business opportunities.
Glazer’s Internet plan, which has been the subject of much scrutiny by industry insiders since he announced it in April, included a business schematic not unlike those being tried by Disney, Time Warner and other media giants. Through a Zapata subsidiary called simply Zap Corp., Glazer was to amass entertainment-themed sites–from book and music retailers to gamer and college sites–into a network with a shared sales, marketing and commerce operation. “The obvious piece that fit us all together was we were all niche players in a vast market,” explained Cole. “Avie could obviously go out and buy us all for considerably less than a huge player.”
Glazer intended to fund by either spinning off the property as an independent business or through an initial public offering. But when the stock market got ugly, Glazer, at the recommendation of financial consultants at Salomon Smith Barney, informed his acquisition partners–in most cases, via fax–that he was foregoing the plan and re-evaluating his Internet strategy.
The news met with little surprise from the legions of skeptics. However, that didn’t stop many of the acquirees, especially the smaller ones, from voicing their dismay about Glazer’s about-face. Cole, the founder of Mass Music, initially tried to muster support among the group of stood-up sites to file a class action suit against Glazer.
Cole reasoned that Glazer could have been charged with fraud because, by agreeing to the terms of Glazer’s letter of intent to purchase his company, Cole was forced to forego other marketing and distribution alliances that would have gotten his business more consumer exposure for the crucial fourth quarter e-commerce push. “He very likely killed the Christmas season for us,” Cole says of his company which is still on the block.
Cole’s partner, Tom Tansy, was cooler about it when contacted last week. “We’re just disappointed the transaction didn’t close,” he said. “But as of now, this company is not pursuing legal action.”
Why the sudden reversal from Mass Music officials? Well, considering that the letters of intent clearly stated funding was contingent upon a healthy securities market, the deals were never a sure thing, so there is probably no clear case against Glazer.
In fact, there are many former partners who say they would work with Glazer or Zap Corp. again. Some of the people who know Glazer best–including potential business associates whom he left at the altar–think, and certainly Glazer’s concept of an online entertainment network, will become a reality some day.
“I think they will be back,” says Dave Rae, founder of Attitude Network, purveyor of gamer sites Happy Puppy and Games Domain. Rae’s company was to be the biggest of the acquisitions and his staff would have run the network’s daily operations. Rae, a veteran of the merger and acquisition game, believes Glazer was acting in the best interest of his business partners when he pulled the plan in light of the currently slumping IPO market.
Still, one has to wonder whether such support really comes from the fact that Glazer hasn’t yet entirely ceded his position as Internet Sugar Daddy. Zapata did retain a $2 million funding agreement to keep New York-based Web ‘zines Word and Charged afloat. Plus, the company left the door to its Internet aspirations open in a release explaining its decision to back off the plan, stating, ” some [business] relationships may be reconsidered, however, after the corporate strategic review is completed and the condition of the market stabilizes.”
However, if Glazer does decide to revisit the Net, it’s a toss-up as to whether anyone but the true believers will ever again take him seriously.
One factor in his future credibility–or lack thereof–is that Glazer may be the victim of his own unorthodox public relations push. Its components included an ad that ran in The New York Times, The Wall Street Journal and San Jose Mercury News stating bluntly, “Zapata Will Buy Your Web Site!” and headlines about Zap’s intentions when the company launched separate
bids–at inflated prices–to acquire portal Excite and Lycos-owned online directory WhoWhere. Both offers were resoundingly rebuffed.
It’s not surprising, then, that Glazer has done little to shake off a lingering preconception, especially among industry insiders, that he’s nothing more than an opportunist looking to cash in on any momentum for Internet stocks. After announcing his portal plan in April the stock price for parent company Zapata more than doubled to nearly $25 a share. After those gains were wiped out by summer’s end, the company pulled out.
No wonder the experience has taught Cole, among others, a lesson about hunting down a suitable investment partner: Even the best-looking deals might not lead to Internet solvency. “You figure George Bush helped form the company, they gotta be somewhat credible Right?”