Sex, Fish, and Packaged Meat

In 1953, the eminent George Herbert Walker Bush, future president and pre apparent, formed the Zapata Petroleum Corporation – an energy company. In 1954, the corporation created Zapata Off-Shore Company, later headquartered in Houston, to drill for oil in the Gulf of Mexico.

As you might expect, the firm did well. Bush, president of the drilling concern, sold out a few years later…and Zapata became Bush the Elder’s meal ticket to Texas oil wealth. But not before some people think the company’s offshore rigs in the Gulf were used as a staging ground for the CIA-sponsored invasion of Cuba in 1961.

Who really knows about these things. But the Bay of Pigs was known said to be known in CIA circles as “Operation Zapata.” And the names of two of the landing ships carrying the 1,300 Cuban-American soldiers were Houston and Barbara respectively. Coincidence? Maybe. Titillating though, considering that Bush named his combat aircraft in WWII after his wife.

For New World order conspiracy theorists the Zapata story only gets better. Zapata – and Bush – have reportedly been linked to the assassination of John F. Kennedy in Dallas on November 21, 1962. (One web site our researchers found even suggests the Bush family fortune was made arming Hitler and the Nazi’s through a series of shell companies set up by Bush’s father Prescott and the white shoe New York law firm of Brown Brothers Harriman.)

From such illustrious beginnings, the Zapata story only gets bizarre. By the 90’s, Bush’s connection with the company long since dissolved, the company sold off its energy businesses and came under the ownership of financier Malcolm Glazer.

Glazer’s interests are many and varied. He’s a private investor with holdings in restaurant and food services equipment, television broadcasting, baking, real estate, and health care. He owns the Tampa Bay Buccaneers of the National Football League.

But Glazer’s Zapata holdings are by far the most interesting. Zapata owns 61% of an outfit called Omega Protein Corporation, once a division of Zapata…now an independent public company and the largest U.S. producer of fish meal and fish oil. Both come from menhaden – an inedible fish caught of the East Coast and in the Gulf of Mexico.

Fishmeal is primarily used as a protein additive for animal feed. The fish oil gets exported to Europe for use in margarine, shortening, and a handful of industrial uses – which we could not discover.

Admittedly, if odd, it’s a short leap from oil rigs in the Gulf to fish byproducts produced there. But that’s only Zapata’s core business. Since Glazer came on board – along with 14 other Glazers on the payroll – Zapata has launched itself into businesses as diverse as on-line sex and food casings for frankfurters, bologna, and salami.

If the Glazers can be accused of anything, it’s having too much cash and too little sense. In 1999, at the zenith of the Internet boom, the Glazer’s launched Zap.com and suffered the fate of so many future failed on-line entrepreneurs.

In the heady days of Internet start-ups, theory was all that mattered. Even if by experience Zapata was a fish-meal company, they could theoretically still make a fortune by tacking a “.com” on to the company’s name. The goal of Zap.com? To become “…a leading advertising and e-commerce platform by aggregating Internet users through a network of independent third party websites.” Huh?

The company added: “We do not have any significant assets or a network in place and we have not formally entered into any strategic relationships nor generated any revenues.” As to those (non-existent) revenues, the company stated “Zap.com will…seek to generate revenues from the network through advertising, e-commerce, sponsorships, and other means.”

Only later would it become clear what the “other means” might be. But the company was optimistic. “Zap.com is focused entirely on the future – a future in a global Internet marketplace whose limits are not yet visible.”

There aren’t too many web sites that people will pay to see, unless the goodies on the site are especially valuable…or just plain raunchy. Zapata’s first bid for on-line site was a hip, smart, and sexy San Francisco-based website called Bianca’s Smut Shack.

We paid a visit to the Smut Shack…in the interest of research, of course. We wanted to see what kind of asset Zapata tried to acquire. No less an authority than Wired magazine called the Smut Shack “an on-line community of the Web’s naughtiest intellectuals – it’s smart, high-minded, a peep of class amidst orgiastic moans of crass.” Bianca, founded in 1994, was one of the first on-line sites dedicated to the not-so-sophisticated art of cyber sex.

Zapata backed out of the deal. They opted instead for a quartet of different sites designed to cater to niche web markets. The most interesting of these four… a site called: www.sissyfight.com. “Sissyfight” is an interactive game played mostly by teenage girls on-line.

The website describes the game as “an intense war between a bunch of girls who are all out to ruin each other’s popularity and self-esteem. The object is to physically attack and majorly dis (insult) your enemies until they are totally mortified beyond belief.” Like, a totally awesome business model. Totally.

Our experience is that teenage girls do this quite well in real life, without the help of the Internet. Yet The New York Times called Sissyfight “fascinating.” And it was favorably reviewed in such august publications as Wired, Salon, Details, and Seventeen.

Alas, the “visibility” thing caught up with Zap.com…and all was for naught. In December 2000, Zapata shut the site. The owners concluded: “operations were not likely to become profitable in the foreseeable future.” Zapata has since moved back into the two businesses it knows: fishmeal…and sausage casings.

Zapata’s other main holding is a 38% stake in Viskase Corporation. Viskase makes “casing solutions.” That is, they make “cellulosic casings” used for packaged meat. Things like ham, bologna, and “other” processed mystery meats…a useful business we’re inclined to believe very few people know how to do profitably.

Viskase is modest, but respectable – with over $48 million in sales in the first quarter of 2001… down7.2% from the year before. The main drag on earnings attributable to a decline in European sales in the wake of the foot-and-mouth and mad cow scares.

Right now, Viskase has a market cap of $17 million with $20 million in cash. The current share price of $1.11 is just off the 52-week low of .90 cents.

What remains attractive about the parent company, Zapata – is the $83 million in cash it’s sitting on. To what extent is the Glazer family a liability? Who knows…but the real question seems to be – is that much cash too good to pass up at the current price of $21.25?

With a pedigree as diverse as this one… Zapata might just be one for the trophy shelf.

Regards,

Dan Denning
Paris, France
June 13, 2001

On the prowl for cash-rich survivors…

Daniel Denning is the editor of The Daily Reckoning Investment Advisory.

*** In June of 1995, the Dow was only at 4550 and the Nasdaq was still under 1000. Investors were not unhappy. Indeed, there were those among us who considered even those levels as a kind of wishful thinking and dismissed stock buyers as fools.

*** Nevertheless, led by the Fed’s 7 rate cuts over the next 12 months, both the Dow and the Nasdaq took off. The Dow rose 158% over the next 5 years. The Nasdaq shot up 450%…and then went up another 37% to over 5,000 in early March, 2000.

*** Then, on March 10th, stocks began giving up their excess valuations. But after correcting more than half the Nasdaq’s gain and a bit of the Dow’s, prices are once again rising. The Dow is up 23% in the last 6 weeks, bringing the current P/E for Dow stocks to 24. The Nasdaq is up 40%. Investors losses, estimated at $4 trillion in March, have been lightened to only $2.8 trillion.

*** Richard Russell writes: “History has shown that when PE ratios are as high as 22, the expected median return over the coming ten years is five percent. What does median mean? It means that there may be mini-bull and mini-bear markets over the coming ten years, but when these are all averaged out, the median will be below five percent.”

*** Where to from here? Let’s see what happened today on Wall Street. Eric Fry reports:

Nokia told Wall Street, “Sorry, wrong number,” and investors promptly knocked its stock off the hook.

The Finnish cell-phone company’s shares dropped a staggering 19% after warning that it would sell about 100 million fewer handsets this year than the 500 million it predicted it would sell just two months ago. Nokia mentioned as well, that its earnings for the current quarter might be about 1/4 less than the Wall Street seers had been expecting.

The unwelcome news sent the Nasdaq cascading about 3% lower within minutes of the opening bell. But by day’s end, the gutsy index finished with less than a one-point loss. The Dow likewise recovered from early morning losses to gain about 26 points on the day.

The on-again-off-again gold market was “on” yesterday, gaining $3.60 per ounce to recoup most of what it had lost on Monday. The barbarous, and ever- perplexing metal, now stands at $271.75 per ounce. Gold stocks gained about 3%.

French prime minister, Lionel Jospin, mastermind of the 35-hour work week, advocates yet another way to undermine his nation’s productivity – extend two- weeks’ paid paternity leave. I wonder if Jospin has thought this through. A recent academic study from the SUNY, Stony Brook determined that 55% of French men report having sex two to three times per week. Only 33% of American men boast of similar frequencies. What chance does economic productivity stand against the reproductive kind? (Bill, how do you find the time to get your work done?)

“Corporate America’s Profits on the Skids,” declares a Reuters headline. “More than anything else, the surge in the profitability of American corporations has been the root of the U.S. stock market’s incredible run in recent years,” commented Business Week recently.

Dr. Richebacher responds: “The U.S. profit miracle of the late 1990s is just another fairy tale…The reality of American business profits since 1995 is that they increased at only about 6% per year. Wall Street celebrated “a profit boom that never happened,” says Richebacher.

Profits are falling – even from the modest levels of the last 5 years. Dozens of major corporations issue profit warnings each week. There is no sign of animprovement and the effects are far-reaching. “A swift and severe ad slowdown has taken the breath from more than one media executive,” the Industry Standard reports.

The US economic slowdown may be cutting far deeper than most folks believe. State tax receipts are collapsing. It turns out that neither jobless workers, nor investors without capital gains, pay taxes.

Here’s a thought. If the consumer is willing and able to spend us out of recession, why are so many credit card company officers and board members selling their stock? Is it not curious that the guys holding a front-row seat for the consumer credit spectacle are selling their shares so feverishly?

“By far the heaviest selling occurred at Capital One Financial,” the Wall Street Journal reports. “Capital One’s chairman and chief executive officer, Richard Fairbank, sold one million shares, and Nigel Morris, the company’s president and chief operating officer, sold 878,146 shares…This year, Mr. Fairbank has cashed in about $139.8 million of shares, and Mr. Morris about $100.5 million.” Hey, a man’s gotta eat, don’t he?

*** Hmmm, what else? Global warming, maybe? An article in The American Spectator describes the work of an oceanographer who found a way to “concoct a 3,000-year record of the temperatures of the Sargasso Sea near Bermuda.” What did he discover? Temperatures were warmer in the medieval era and then turned colder during the ‘little ice age” of the mid-1700s. It appears that the earth has been warming since then. Maybe greenhouse gases are accelerating the natural warming process. And maybe they’re not – no one knows. But the record shows that temperatures, like markets, go up and down on their own.

*** I had dinner with Martin Weiss last night. He was in good cheer when I met him, but we had another bottle of wine anyway. “Don’t worry,” said Martin, “the coming global depression will reduce carbon dioxide emissions much more than the Kyoto Treaty.” That’s a comfort.

Bill Bonner

Question: What do the Bay of Pigs invasion, the Kennedy assassination, George W. Bush (the senior), fishmeal, cat- fights between teenage girls, foot-and-mouth disease and on-line smut have in common?

The answer is no joke. In fact, it’s a darn cheap stock selling at just over 1 times sales – with $83 million in the bank. We asked The Blue Team’s Dan Denning to take a look.