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Zynga to Put Headquarters Building in San Francisco on the Market
- fasteddie 11y agoAnyone have an idea if this means anything other than trying to cash out an investment before real estate prices potentially decline? Does this make them a better/worse target as an acquisition? Or could this be generating cash so Z could acquire someone else?
- mathattack 11y agoIt can help if it turns an illiquid real estate investment with a liquid software company attached to it into a software company with a lot of cash. There's not much they can do to unlock the real estate value other than borrow against it which is risky. I suspect that once they have the cash in the banks, activists will push them to "enhance shareholder value" with it, which is more likely share buybacks than anything else. It could still lead to an acquisition. Unlocking the cash is nominally better than holding onto the building from a buyout perspective in that it saves the buyer the dirty work. If the buyer wants to do an LBO, they can use the cash to finance it. (Strange how that works!)
- st3v3r 11y agoIt really should be illegal for a buyer to use a company's existing cash to pay off the purchase.
- lmm 11y agoThey don't use it to pay it off, they use it to secure it. No different from buying a home on a mortgage (the home itself is security for the loan).
- roymurdock 11y agoThanks for the thorough but concise summary. > If the buyer wants to do an LBO, they can use the cash to finance it. (Strange how that works!) Agreed. If you can't figure out what to do with your cash, someone else with less insider knowledge and experience will. AKA they'll rebalance your books, make the tough cuts that you can't, point you in a new direction, and exit at 5-10x their initial investment in a couple of years.
- tropo 11y agoSo, Apple? They are sitting on cash.
- mathattack 11y agoCarl Icahn [0] was looking at Apple. The company is so big that it would be hard for him to buy it, but he's able to needle it from the sidelines. [0] http://fortune.com/2015/09/30/carl-icahn-buy-apple/ http://fortune.com/2015/09/30/carl-icahn-buy-apple/ Generally this turns into companies doing more dividends and share buybacks.
- toyg 11y agoIt's not turning out that way for Manchester United though. The Glazer takeover simply burdened the club with massive debt, did not change anything in terms of actually running the club, and nobody will ever pay 5-10x what the Glazers did. It just enabled them to siphon money out of the club (as well as using it as a financial dump for sketchy funds, but that's pretty common in the football world). Leveraged takeovers are often simple cash grabs by plundering buccaneers.
- mathattack 11y agoFor an LBO they don't need to be paid 10x. If I borrow 900K to buy a million dollar business, I have only 100K invested in it. Let's say 2 years later I sell the business for 2 million... After paying back the 900K and perhaps 100k in interest I am left with 10x (1 million) of my 100k equity. Of course if the debt kills the company, we all lose.
- deleted 11y ago[deleted]
- stevehawk 11y agoupvoted for mentioning how it could be used for inviting a leveraged buy out or hostile takeover.
- at-fates-hands 11y agoWhen was the last time a software company including real estate holding as part of a deal to purchase the company? Is there any history of a company who wanted to sell and sweetened the pot by throwing in some corporate offices they own? It's different than what Zynga is doing, but I'm wondering if its a viable alternative.
- mathattack 11y agoNot sure on software but when Barclays bought Lehman, in the surface they got most of the value from the building. (It's a little more complicated) Retailers (Sears and Target) have historically been valued primarily on real estate. It's not that different than Yahoo being valued primarily on their investments rather than core business.
- gozur88 11y ago>I suspect that once they have the cash in the banks, activists will push them to "enhance shareholder value" with it, which is more likely share buybacks than anything else. Which is perfectly reasonable. The money belongs to the shareholders, after all. Shareholders are generally happy if their money is going toward new profitable ventures, but they don't normally tolerate big piles of money in the corporate kitty that aren't doing anything. In that case as an investor you'd rather have it disbursed somehow so you can invest it somewhere else.
- mathattack 11y agoI agree. Unused cash past a certain level (rainy day fund) is counterproductive and generally associated with weaker returns.
- cft 11y agoThat means that the end of Zynga is near. The price of the building at $600/sq ft is 1/3 of their market cap now.
- tiredwired 11y agoMaybe they are downsizing and won't be needing room for that many employees.
- tryitnow 11y agoIt makes them a much better target. If I'm looking to buy Zynga it's because I want a software company, not a real estate holding company. I can expose myself to real estate through REITS or PE funds that specialize in real estate. They could also use it to acquire someone else, although it seems a bad time to make an acquisition.
- beamatronic 11y agoIt's a neat building. It sits in the design center of San Francicso, and was originally built as a mall. Here is some of the history. http://www.syserco.com/projects/zynga http://www.syserco.com/projects/zynga
- minimaxir 11y agoThe same building used to be the headquarters of Sega of America back during their heyday. (the level design of Sonic Adventure 2 was heavily influenced by San Francisco / Bay Area)
- aYsY4dDQ2NrcNzA 11y agoSega, CNet, Macromedia...
- SteveNuts 11y agoI'm starting to see a pattern
- systems 11y agosome buildings are bad luck
- jacobwcarlson 11y agoI'll take Macromedia's luck any day of the week.
- hyperbovine 11y ago"Things I used in high school"
- mikeryan 11y agoNot CNet, ZDNet (Ziff-Davis) and TechTV (Which started life as ZDTV). Worked there can attest ;-) A lot of the Adobe Stuff including the Macromedia divisions when they were alive are still immediately next door or across the street. I think their use of 650 Townsend was mostly for overflow office space.
- daheza 11y agoIt doesn't appear to be actively listed yet http://www.loopnet.com/locations/zynga-inc_/properties http://www.loopnet.com/locations/zynga-inc_/properties
- a3n 11y agoDoes it come with the cardboard standups of animals that have the founder's haircut?
- mayank 11y ago> San Francisco-based Zynga is putting its San Francisco headquarters office property on the market for sale, according to sources that track the sale of office buildings in San Francisco. They're going to lose out on the fact that everyone stuck on 101 headed onto the Bay Bridge has to look at their billboard, sometimes for long periods of time. It's definitely prime property that they're giving up.
- fluxquanta 11y agoYes, but prime property where?
- objclxt 11y agoThe story says they're exploring a sale and long term leaseback - they wouldn't be moving out, they would be selling the building to raise money then leasing it from whoever bought it.
- SilasX 11y agoAny time I'm stuck in gridlock, I just feel really frustrated and mad, and associate negative affects with any ads I see. I can't help but think others are the same, though I guess they still like billboards people will see during such periods so maybe I'm different...
- jonesb6 11y agoLike all the Apple bill boards in that area.. never buying an iPad ever.
- levemi 11y agoJust as an FYI if you are going to cross the bay bridge you should not get on the freeway before the turn. You should drive down regular streets and get on the freeway on 2nd street. If you're coming from the peninsula there are exits before potero hill you could take. I shave off 30+ minutes from my commute this way.
- deleted 11y ago
- markbnine 11y agoWhen I first read this I thought Zynga was going to move their HQ to Market Street.
- qaq 11y agoLikely the most valuable part of Zynga at this point.
- jedberg 11y agoA lot of people seem to be missing the fact that they plan to sell the building and then rent it back, turning an already paid CapEx into an OpEx. Zynga seems to be really good at the CapEx/OpEx game. Back before they went public, they did everything on Amazon, so it was all OpEx. Then they built the ZCloud, which converted OpEx to CapEx, which investors liked. What a lot of people don't realize is that they have been slowing dismantling ZCloud and going back to AWS (converting previous CapEx to current OpEx).
- et2o 11y agoWhat is the advantage of turning an already paid capex into an opex?
- jedberg 11y agoI didn't word it well, but basically instead of buying more servers (increasing CapEx) you spend more OpEx instead, but not all at once. So it's better on the balance sheet because less is being spend up front (Even though it's more overall). If you mean the building, it's because they can take advantage of the gains and add that to their balance sheet and then slowly spend it back down.
- forgetsusername 11y ago>So it's better on the balance sheet because less is being spend up front (Even though it's more overall). A balance sheet balances, so every asset matches a liability. A sale like this doesn't alter the sheet, they are merely swapping one asset (a building) for another (cash). What is affected is cash and cash flow.
- tryitnow 11y agoActually, I think the balance sheet is affected because they're realizing a profit on the sale. The profits probably haven't been accrued in past P&L's have they? So the amount of profit will be a credit to equity and a debit to cash, improving the leverage of the balance sheet. But that's beside the point, any good analyst would have already adjusted their balance sheet to take account of the value of real estate. My best guess is that they are planning a round of lay-offs and will use progressively less space in the building. I'd wager that they plan to move headcount to lower cost areas. They also view the real estate market as peaking and want to get out at the top instead o ending up with a depreciating asset. These are just my wild guesses though, no analysis to back it up. Overall, it's a smart move.
- webkike 11y agoTheir death can not come soon enough for me
- lquist 11y agoHonest question: why does a technology company own a building anyways? Especially one that is equal to half of its market cap? Surely Zynga investors are not interested in half of their investment being in Zynga and the other half in SF Commercial RE?
- narsil 11y agoZNGA's market cap was 10x in 2012, when they bought the location for the 340/sq foot mentioned in the article. They occupied 65% of the building, which is a good capacity to be at if you're planning on growing. Regarding buy vs. rent, I think at the time it made sense, if they were planning on sticking around for 5+ years, given the price per square foot they paid and the fact that they would fill up the entire space.
- spikels 11y agoHard to argue today that is was a mistake to buy it in 2012. Zynga was flush with cash after the IPO and "well timed" secondary offering[1]. That building is probably worth over $500 million today. Given that the entire company is worth around 1.7 billion it is likely the best investment they ever made. [1] http://www.businessinsider.com/zynga-insiders-cashed-out-just-before-stock-crashed-2012-7 http://www.businessinsider.com/zynga-insiders-cashed-out-jus...
- mathattack 11y agoPart of it is timing, part cost. If you can fill a building and plan to be there for a while, generally it pays to buy it rather than rent it. (The renter generally charges a premium to short term borrowers) For financial accounting/engineering purposes (not wanting to show liabilities) firms may do long term leases. This is why it pays for companies like Apple to own their headquarters. Overbuilding the HQ is a classic sign of hubris, similar to putting your name on a stadium. (Look to Lehman and Bear Stearns for the former, Enron and 3com for the latter)
- toyg 11y agoIsn't that the same as "cloud vs physical"? If you plan to use a lot of resources consistently for several years, physical is cheaper; if your workload is more transient, you choose virtual. (The main difference being that real estate can even increase in value, so it is an investment as much as a cost; whereas computers invariably depreciate to 0 in the end.)
- aluminussoma 11y agoAdobe passed on that space and surely regretted it when they started growing again. Adobe would surely be interested in it - if Zynga were to vacate.
- Negative1 11y agoSo from the article, Zynga was going to post a loss (if I read that correctly), but because of the sale, they'll post a hefty profit. Given the artificiality of this profit, are execs still expecting to be paid performance bonuses? If so, wow, very shady.
- beedogs 11y agoThis is the kind of trick that only works once, though. The smart folks should see the writing on the wall.
- neptunespear 11y agoFun fact: The CEO of Zynga founded EA Burnaby, in my hometown.
- andhess 11y agoThe title of this is incredibly confusing - at first I thought it was about Zynga moving to Market Street.
- bluesix 11y agoSurely the could've said "up for sale". But the capitalised "M" on market was just trolling.
- strimp099 11y agoTo be promptly purchased by Palantir.
- princetontiger 11y agoI work at Zynga... The office building is awesome. The amenities at Zynga are still some of the best in the Bay Area. Awesome gym, large basement arcade, and snacks everywhere.
- beedogs 11y agoThis just postpones the inevitable.