Wall Street Journal, May 15, 2008
By Mike Barris

CBS Corp. agreed to acquire CNET Networks Inc. for about $1.8 billion, just as the technology-focused online news provider's battle with dissident shareholders was heating up.

CNET shareholders will get $11.50 a share, a 45% premium to Wednesday's closing price and above any price at which the stock has traded in about two years. Shares of CNET soared 44% to $11.44 in recent trading, while CBS's stock fell 3.7% to $23.91.

The deal adds another Internet property to CBS's stable, which the media company has suggested it's looking to grow.

CNET, however, is facing increased competition for users and online advertising dollars. The company's revenue rose 10% in 2007, to $405.9 million, but its reported profit was helped by a big tax benefit. CNET reported a loss of $6.1 million in the first quarter, as revenue rose slightly.

"There are very few opportunities to acquire a profitable, growing, well-managed Internet company like CNET Networks," CBS Chief Executive Leslie Moonves said. He added the move would put his company's content "to a whole new global audience."

CNET has been engaged in a four-month proxy fight led by New York hedge fund Jana Partners LLC, which has been seeking to elect seven new members to CNET's eight-person board.

It wasn't immediately clear how those funds might react to the deal, which will be executed via a tender offer and is expected to close in the third quarter. Jana officials couldn't immediately be reached for comment. CNET's board has approved the agreement.

Jana is the largest shareholder in CNET, with more than 10% of the outstanding shares as of March 31. Overall, hedge funds own more than 38% of the company's stock, according to FactSet Research.

The fund has been pushing for CNET to undertake "fundamental strategic and operational change."

The investor group led by Jana has nominated a slate of seven directors who would replace two directors and fill five new seats, putting the board's membership at 13 and giving the dissidents a majority.

Jana has criticized CNET's plans to assemble a reorganization task force, saying the company should have taken such action years ago. CNET has responded that it has "constantly innovated" and has made significant strategic, financial, personnel and operational progress. In March, CNET announced plans to cut 120 U.S. jobs as part of a realignment.

The hedge fund, in an analysis of CNET released at the end of March, has said the company failed to create shareholder value and "adapt to the changing industry environment," and needs "comprehensive change and the right board to implement it."

San Francisco-based CNET owns such Internet entertainment, news and information sites as CNET, ZDNet and GameSpot.com. The company has "a large international footprint, particularly in China," CBS said.

CNET's sites will be combined with CBS's news and sports sites as well as CBS Radio and CBS Television Stations digital media platforms, and the distribution network of the CBS Audience Network, which is made up of more than 300 partner Web sites and reaches 82% of all U.S. online users.

Mr. Moonves said a combined CBS-CNET will have "significant additional exposure to the fastest-growing advertising sector and can accelerate our growth through a number of new content, promotion and advertising initiatives."

George Stahl contributed to this article.

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