CBS interest in CNET began over a year ago


An SEC filing by CBS Corporation reveals that first contact between CBS officials and CNET officials about “potential strategic business opportunities” was in April 2007. The filing also reveals that CBS first offered $10.50 per share to buy CNET, but added an additional buck in the course of negotiations with the CNET board.

The filing also disclosed that a CBS subsidiary, N Holdings I Inc., has already been buying up CNET stock on the open market. From April 3 through May 1 N Holdings bought a bit over 1.2 million shares, or 0.8% of CNET’s shares outstanding, for $9.4 million at an average price of $7.76 per share.

It was back in early April of 2007 that four key executives of CBS – CFO Fred Reynolds, Sr. VP and Chief Development Officer Joseph Ianniello, CBS Interactive President Quincy Smith and CBS Interactive Exec. VP and Chief Marketing Officer Patrick Keane – met with top CNET officials, including CEO Neil Ashe. The SEC filing says they “discussed generally CNET’s businesses and potential strategic business opportunities that might be available to the two companies. No specific proposals resulted from these exploratory discussions.”

The CBS management team continued to review opportunities related to CNET and an December 2007 CBS Corporation CEO Les Moonves contacted Jarl Mohn, Chairman of the CNET Board, seeking an opportunity to talk about potential strategic business opportunities. Mohn said he should deal with Ashe, so Moonves contacted him in January and at the January 30th regular meeting of the CBS Board of Directors Moonves and Reynolds discussed potential acquisitions with the directors, including CNET. Management level talks began and two months later, on March 31, the CBS Board of Directors gave Moonves the green light to make a bid for CNET.

The first offer of $10.50 per share was made on April 2nd by Reynolds to Ashe, although Reynolds noted that the bid was based solely on publicly available information and that CBS might be willing to go higher if its due diligence revealed greater value. Reynolds also said retaining Ashe to run the operation was critical to CBS’ valuation.

The CNET board got the bid information from Ashe and had him report back to Reynolds that the CBS offer was too low. After some back and forth negotiating, CBS increased its offer to $10.75 on May 5th, but CNET still said that was too low. A confidentiality agreement was signed on May 7th and, after getting some requested non-public financial details from CNET, CBS came back on May 10th with an offer of $11.25, which was boosted to the final offer of $11.50 a day later. Even so, it took until May 15th to work out details such as the termination fee ($35 million), no-shop provisions and employment agreements for Ashe and CNET CFO Zander Lurie. Then the deal was finally announced.

There is no mention in the SEC filing of the pending proxy battle at CNET with disgruntled investor JANA Partners for control of the board of directors playing any role in the negotiations with CBS.

RBR/TVBR observation: The tender offer for CNET is scheduled to close Friday, June 20th. The question to be answered, though, is: When the stock price slide for CBS end? Wall Street clearly does not like this deal, at least from the CBS side. The widely traded CBS Class B stock closed at $24.82 the day before the May 15th announcement of the deal to buy CNET for $1.8 billion. Unless the price stabilizes, it could soon be at $22. Since the offer is all cash, CNET shareholders still get $11.50 per share no matter what happens to CBS’ stock.