Calling for a CBS - Yahoo Merger

Includes: AABA, CBS
by: Matt Stewart

Dear Mr. Moonves (NYSE:CBS), Mr. Yang and Mr. Icahn (YHOO),

I am writing this letter to suggest that you get together at some point in the very near future to discuss the immediate merger of your two companies.

Mr. Yang.

You have the eyes of the world visiting your sites everyday, but for the most part you seem to rent your news, sports, weather content, etc. from third parties.

I submit that you need to initiate a content revolution for your properties and secure permanent access to CBS market leading production capabilities for the future benefit of your users and your shareholders.

Video on Demand remains in its infancy, but will inevitably become a standard way that consumers choose to consume their weekly entertainment. You need to up the content ante - both for your users and for your advertisers.

It is time to take the strategic plunge to create the world's dominant iTV network.


Mr. Moonves,

You are working diligently to develop CBS Interactive. Rather than continuing to build from the ground-up, make the quantum leap and formally put together CBS-Yahoo!

The story you would be able to sell advertisers of your ratings dominant content (eg. CSI, 2 1/2 Men, March Madness, etc.) would be formidable and you could easily end-up distributing content world-wide efficiently via the web v. the relatively inefficient TV network system you have today.

Global brands would seek you out and your coffers would swell while local advertisers would also have a choice to run on network too.

Overnight, you would gain access to millions of eyes worldwide for CNET and your publishing division. eg. CBS-Yahoo Books!

Advertisers would drool at the potential of integrating campaigns across TV, Radio, outdoor and the web...or picking their requirements a la carte.

With YHOO's cap at $18 billion and CBS at $6 billion, it would seem like a marriage made in heaven with CBS shareholders to get a nice premium, no major need for cost reductions, and new revenue streams to open-up left and right!

Plus, you gain the benefits of "first mover" status and leave Google (NASDAQ:GOOG) to settle for network numbers two or three, if they want to respond.

You paid $2 billion for CNET - you have $800 million in cash.

How else are you going to make a quantum leap online if you don't marry Yahoo?

Near term, your stock could double in a takeover. Long-term value would come form the combined franchise if you take back paper.


Mr. Icahn,

I know you are preoccupied with vending to Mr. Ballmer (NASDAQ:MSFT) right now, but perhaps you should consider this plan in earnest as an interim step now that YHOO is $13 a share and MSFT has all of the leverage. Not only could you create the world's dominant media enterprise for the future, but you and the board could hand-pick the best CEO from the two candidates you have in these two firms right now...or bring in a new face to the dynamic. Who knows?

I'll leave the numbers and the details to you and the M&A guys to sort out.

My comments are simply to suggest that it is perhaps time for YHOO to "think outside the searchbox" if it wants to continue to be mainstream and relevant in the future.

And, if you really want to get a big number from Microsoft in the future, surely it would help to have a content component to help drive that valuation. Otherwise, it would seem that anything that starts with a $3- handle is a pipe-dream.

CBS stock is trading at multi-year lows - I am sure that you would relish an opportunity to pounce on a valuation that seems to be less than 6x normalized eps?

It might take a bit longer, but what about a two-stage transaction? Merge YHOO with CBS - then sell to MSFT down the line. Formidable!

Everything you read these days seems to talk about AOL (NYSE:TWX) and Google deals etc. These plays seem desperate and weak to me in a world where the internet and the television are rapidly converging.

Meanwhile, Mr. Ballmer holds all of the best cards to simply wait you out.

So - to close - I submit that the time is now ripe for the world's greatest iTV network to come to fruition in the form of CBS-Yahoo.

I hope you will all take a look at this idea in earnest.

Disclosure:  Author holds long positions in YHOO and CBS