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In "A Loophole Lets a Foot in the Door" (Jan. 15), the New York Times' Andrew Ross Sorkin describes how CNET chief executive Neil Ashe had an hour-long conversation with activist investors at Jana Partners. According to the column, Ashe was then surprised when Jana and its group launched a proxy contest to take over the board. "They indicated to us that they were a long-only deep-value hedge fund," Ashe says, according to Sorkin. "I spent an hour with them on the phone answering questions about our business." Then, he adds: "We didn't hear anything from them again."

Sorkin uses this anecdote to explain how activist fund managers use "complex swap agreements with investment banks" to get around disclosure rules and launch surprise attacks.

Is this the whole story, however? Maybe not. Regulatory filings disclose that prior to Sorkin's column, Jana Partners and its group held talks with CNET officials indicating that their activist campaign really should not have been any surprise to Ashe and probably wasn't.

In a 13D filing disclosed  Jan 7, a week before Sorkin's column, Jana reported that representatives had held several calls with CNET through October, at least one of which was to discuss proposals for improving operations. The filing also says that Spark Management Partners LLC's Santo Politi, a venture capitalist and member of the Jana group, met on Dec. 6 with CNET chairman Jarl Mohn to inform him of the investment by the group, "to discuss proposals for improving the operating performance" and to request a follow-up meeting with independent board members; Ashe rejected the latter. "In a subsequent conversation, Mohn informed Politi that any discussions with members of the board would need to be coordinated by Ashe," the filing said.  

Soon after, on Dec. 28, Jana delivered notice to CNET that it planned to nominate directors. These conversations demonstrate that Jana and its group actually had talks with CNET officials and aired their proposals. They also suggest that Jana didn't think everything was fine with the business. Ashe's decision to reject a meeting between CNET independent board members and the Jana group also shows that the situation wasn't  exactly "friendly."

And let's get real. We're talking about Jana Partners here, a major activist hedge fund that regularly launches campaigns, not some obscure fund from under a rock. Sorkin gives the impression that Ashe was "surprised" because Jana had talked about becoming a "friendly, long-term shareholder." Any IR official or corporate executive with a heartbeat would know that Jana will launch an activist campaign if it doesn't get its way. 

The issue of swaps is a matter for continuing debate, but one thing is clear from the filings: Ashe and his team were either not surprised, or shouldn't have been. - Ron Orol  

See story from The New York Times
See Jan. 7 13D filing from SEC Edgar
See related story from The Deal's Soapbox

Source: CNET: Surprise at Face Value