CBS in $1.8B deal
for online news,
info site CNet

By Jeremy Herron
SeattlePI.com
May 15th, 2008

    
CNet Networks workers at CNet headquarters
AP Photo/Paul Sakuma)
  
NEW YORK -- Media and entertainment company CBS Corp. is buying CNet Networks Inc., an online news and information provider, for $1.8 billion in cash in its latest bid to expand its reach on the Internet, the companies announced Thursday.

The price of $11.50 per share represents a massive premium of 45 percent over CNet's closing stock price on Wednesday, and appears to get CNet out of a nasty battle with one of its largest shareholders, which had been agitating for a shakeup at the company after its stock slumped.

CNet shares jumped $3.48, or 44 percent, to $11.43 in morning trading Thursday. Investors didn't see the deal as positively for CBS, and pushed that company's shares down 89 cents, or 3.6 percent, to $23.93. Citigroup analyst Jason Bazinet said in a note that the "pricing risk is high" for CBS.

CBS's CEO Leslie Moonves told reporters on a conference call that acquiring access to CNet's large online audience in order to distribute media content from CBS was "a large part" of CBS' motivation in going after the San Francisco-based online company.

"Our idea is to have our content wherever, whenever you can get it, and adding CNet just makes that happen faster," Moonves said.

Despite the high premium CBS is paying for CNet, CBS's chief financial officer Fred Reynolds called the price "fair" said the acquisition would immediately add to CBS's earnings. CBS will fund the acquisition with cash on hand.

CNet was an early pioneer on the Internet, but its executives have faced harsh criticism from dissident investors in recent months who say the technology news and entertainment company should be doing more to restore the $1 billion in shareholder value that has disappeared since December 2005.

CNet is known for technology reviews, news and advice but has also expanded into entertainment areas with a stable of sites that includes ZDNet, GameSpot.com, TV.com, mp3.com. It also owns the highly valuable Internet domain name News.com.

Moonves said he saw opportunities for distributing CBS news, music and other content on CNet's online outlets, and also for tapping CNet's significant online advertising sales operation to boost over ad growth for the media company.

CBS's chief of interactive business Quincy Smith has been moving aggressively to find new online outlets for its entertainment programming as more people shift their media consumption from traditional outlets like TV and radio to the Internet.

On Wednesday, CBS announced a partnership with Eqal, the company that came up with the online video hits "lonelygirl15" and "KateModern," to work on video programming that's integrated across broadcast television, online and mobile media platforms such as cell phones.

The acquisition, expected to close in the third quarter after shareholder and regulatory approval, would make CBS one of the 10 most popular Internet companies in the U.S., with 54 million unique visitors a month and approximately 200 million uses worldwide, CBS said.

CBS, which is also a major radio broadcaster, inked a deal in March to provide audio programming from all 140 of its radio stations to Time Warner Inc.'s AOL music service.

A group of investors led by the hedge fund Jana Partners LLC has led a proxy fight to get a slate of directors elected to the CNet board. They say CNet's management failed to take advantage of the company's online presence to grow revenue in line with the online advertising market.

A Jana Partners spokesman declined to comment on the CBS announcement.

CNet recently reported a narrower first-quarter loss and said revenue grew by 2.6 percent to $91.4 million.

The company was founded in 1992 by Shelby Bonnie and Halsey Minor. Bonnie was chief executive until 2006, when he resigned amid an accounting scandal related to the timing of stock option grants. To clean up that mess, CNet took non-cash charges of $105.7 million during the 10 years ending in 2005 and restated its financial statements.

Bonnie, one of the company's largest holders, still owns about 10.1 million shares. The sale would give him a windfall of $116.2 million. The stake was worth more than three-quarters of a billion in 1999, when CNet shares traded as high as $79 at the height of the technology bubble.

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AP Business Writer Seth Sutel in New York contributed to this report.


http://seattlepi.nwsource.com/business/1700ap_cbs_cnet.html

'Day After' Analysis
(courtesy New York Post)
May 16

The purchase promises to transform CBS, previously an also-ran online, into one of the Top 10 biggest players on the Web in terms of traffic, with upwards of 54 million unique users per month in the US and over 200 million eyeballs around the world.

CNET, headed by Neil Ashe, claims 160 million users worldwide across a broad network of sites including CNET.com, Game- Spot, MP3.com, TV.com, ZDNet, News.com, UrbanBaby, Search.com, MySimon, and TechRepublic.

CBS currently claims 40 million users of its own branded properties like CBS.com, CBSSports.com and CBSNews.com as well as other popular sites like music site Last.fm.

"This is a chance to make sure we have complementary assets and properties in high-end premium content online where we are actually seeing real businesses being driven," Quincy Smith, president, CBS Interactive, told The Post. "Inside CBS there's more of an opportunity for CNET to unleash its assets and grow them further."

Moonves added in a statement that CBS is picking up a profitable, growing Internet business, and increased exposure to the fastest-growing online ad businesses.

SMH Capital analyst David Miller noted that the strategy is not cheap, pointing out that the price tag is "certainly expensive given the current environment."

And one online ad executive questioned whether CNET is "the answer" to CBS' digital strategy, saying that he saw more "little synergies" that involve using unused ad inventory to promote properties.