CNET Networks, the once high-flying technology site, may be positioned for a hostile takeover of the board.
Jana Partners, a San Francisco-based hedge fund, is using a 16 percent interest, and has teamed up with Sandell Asset Management, which has a 5 percent interest, to appoint handpicked execs to the board. Jana proposes CNET expand its board to 13 members, up from 8, so that it can take majority control with 7 directors.
For the moment, the fuss may be for naught. It's not clear Jana will be able to get its dream team in since CNET's by-laws prohibits shareholders from nominating their own board members unless they've held the stock for at least a year. (Jana says it is suing in Delaware to get CNET to drop the provision, calling it discriminatory.) There's also still time for CNET to launch a poison pill, which would prevent a hostile takeover by making it too expensive for Jana to buy CNET shares.
CNET's real crime? The stock has gone nowhere but down. Jana notes that shares of CNET have fallen 19 percent over the last three years, while the Interactive Week Internet Index climbed 32 percent and the Nasdaq climbed 22 percent.
"This move looks a little severe to me," says Sandeep Aggarwal, an analyst with Oppenheimer & Co. "Basically, Jana is saying that the system is a total failure. But CNET is still among the largest web sites in the world. It definitely needs to a fresh perspective on its management of the company, but it should be decided in a more democratic manner." (Aggarwal has a neutral rating on the stock and doesn't recommend investors buy at current prices.)
Founded in 1993, CNET Networks enjoyed a meteoric rise as one of the largest technology news sites on the internet. Shares of CNET, which trade below $10 now, traded as $79.88 in 1999, before the bubble popped. (Full disclosure: Wired News is a rival to CNET's News.com.)
Over the last couple years, CNET has hustled to grow its business by gobbling up new non-technology focused web properties, such as UrbanBaby, Chow and TV.com. Still, sales growth has been anemic. For the nine months ended Sept. 30, sales climbed 7 percent. By contrast, overall internet ad sales grew 25 percent during the same period, according to the Internet Advertising Bureau.
One of CNET's key challenges has been to monetize its existing traffic, according to Aggarwal. The company was also otherwise occupied with some pretty big distractions: Co-founder and CEO Shelby Bonnie resigned in 2006 after an investigation identified past stock option grants that had been backdated.
In response to Jana's proposal, CNET said it would be "improper" to expand its board.
"CNET Networks' board and management team have been and remain
intensely focused on acting in the best interests of the Company
and creating value for all stockholders . . . The management team is fully supported by the board
of directors in these efforts," the company said in a prepared statement.
Photo: Flickr/Kevin Steele
