CNET Considers Appeal to Jana Ruling

Online media company CNET Networks Inc. (CNET) said late last Thursday it may appeal to a court ruling that allows a group of investors to nominate seven directors to its board.

The Delaware Court of Chancery ruled earlier Thursday that hedge fund Jana Partners LLC, which is leading a group trying to wrest control of CNet's board, could nominate directors without violating the company's corporate bylaws.

Jana is taking on CNet with investment funds Sandell Asset Management Corp. and Velocity Interactive Group, venture capital firm Spark Capital and technology entrepreneur Paul Gardi of Alex Interactive Media.

CNet said in January that the group's efforts to nominate two directors to board seats and then expand the board by five members to 13 from 8 were improper under its bylaws.

Jana took the matter to court through an affiliate, Jana Master Fund Ltd., challenging CNet's interpretation of its bylaws.

Jana wants to nominate Gardi and Santo Politi, the founder of Spark Capital and one-time president of new media for Blockbuster Entertainment Corp. And if it succeeds in expanding the board, Jana also proposed five other nominees for director slots.

"We look forward to moving on to a substantive discussion of the need for change at CNet, and why we believe our nominees have the expertise and experience needed to reverse CNet's ongoing underperformance," said Barry Rosenstein, Jana's managing partner, in a statement.

Rosenstein added that he hoped the company will put aside their efforts to thwart the group and engage shareholders about the company's future.

Jana has argued that CNet lags behind its peers in value creation and performance and needs to be revitalized. CNet owns a variety of popular Web sites, including News.com, TV.com, GameSpot, Chow and Bnet.

But it appears that CNet will not be deterred, at least for now. "We believe that it is not in the best interests of our stockholders to undertake a costly and disruptive proxy contest initiated by Jana Partners that does not comply with the company's by-laws in place since the company's initial public offering," CNet said in a response to the ruling.

San Francisco-based CNet said it will continue to defend the litigation because "it is not in the best interest of our stockholders to undertake a costly and disruptive proxy contest initiated by Jana Partners that does not comply with the company's by-laws."

It added that Jana will need to secure a super majority vote of at least 66.67% or two-thirds of CNet shareholders to elect more than two directors. The group led by Jana holds a 14.9% stake in CNet, so it will need support from other shareholders to gain control of the board.

-- Donna Block