CBS: Is CNET Purchase a Good Move?

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Includes: CBS, CNET
by: Julia Boorstin

CBS Corp. (NYSE:CBS) CEO Les Moonves is serious about making his company an online powerhouse. Yesterday, CBS announced it's buying CNET Networks for $1.8 billion dollars, paying $11.50 a share, a 45 percent premium over Wednesday's closing price.

CNET (NASDAQ:CNET) owns a slew of websites, including CNET.com, which specializes in tech and gadget news (a couple CNET writers are regular CNBC contributors), plus Gamespot.com and MP3.com, to name a few.

CNET's websites attract some 200 million unique users worldwide each month, and boast relatively high ad click-through rates. BMO Capital Markets analyst Lee Westerfield tells me he thinks it makes sense as it builds on CBS strength in producing content and distributing it digitally. He noted that since CBS has such a strong balance sheet it has plenty of cash on hand.

Wall Street doesn't seem to be sold on the news. CBS stock traded down yesterday. But Thursday morning on a conference call CBS said paying this premium entirely makes sense, and not just because the stock's multiple doesn't look so bad compared to its competitors. CBS said that the acquisition should boost earnings from the very start, and that combined CNET and CBS interactive revenues should reach $1 billion by 2010 or 2011.

But CNET isn't without its problems. This year CNET's been fighting a proxy battle from Jana Partners, which owns ten percent of CNET's voting stock, and is pushing management to change its strategy to halt the company's declining growth. Arguing that CNET has been underperforming its peers, Spark Capital and Sandell Asset Management are also pushing for greater control of the company.

From the site, 24/7Wallst.com., here's one blogger's take on why this isn't the wisest call.