Les Moonves: Visionary or fool?


Wall Street has voted thumbs-down on last week’s deal by CBS Corporation to buy CNET for $1.8 billion in cash, putting CBS’ stock price in a downhill slide since the deal was announced. So, just what does CBS Corp. CEO Les Moonves see in CNET – and is it worth the price?

CNET was an Internet pioneer, although lately its stock price had been beaten down as competition made investors question its growth prospects. CBS came charging in as a white knight to the rescue when JANA Partners launched a proxy battle for control of CNET’s board of directors. Some observers now wonder whether CBS is repeating the error that Time Warner made in acquiring AOL – overpaying for an Internet brand that was in decline.

To be sure, CNET has some attractive assets. There is value just in the URLs for News.com and TV.com. The tech-oriented News.com can certainly benefit from sharing resources with CBSNews.com, and visa versa. It goes without saying that TV.com fits like a glove with the main business of CBS, so long as the company maintains a wall and doesn’t let the television programming site become a place to hype CBS shows to the detriment of competing networks.

For the parts of CNET aimed at the general public, tying into the CBS ad sales structure should be a plus. In a Q&A for employees, CNET said: “This announcement opens the door to bigger sales opportunities. Combined, we have a bigger audience, more brands and more page views which provide marketers with more scale and reach. Their brands complement our existing categories giving us quality reach across more premium audiences. For example, we believe we can build the ultimate men’s network with sites like CBS News, CBS Sports, CNET, GameSpot and BNET. Our opportunity to win new accounts in more ad categories is dramatically increased. We will work on these programs and opportunities after the deal is closed.”

There seems to be no doubt that the deal is a good one for CNET. Its management avoids the showdown with JANA Partners and the break-up fee is a modest 2%, so there is the potential for a topper bid coming along if CNET left any value on the table in the hush-hush negotiations with CBS.

Wall Street isn’t convinced that the deal makes sense for CBS, though. Many investors would prefer not to see Les Moonves making any big acquisitions, particularly any that increase CBS Corporation’s dependence on ad revenues. Others may have wanted CBS to buy The Weather Channel, which fits better with its traditional business lines – albeit with a considerably higher price tag. The CNET deal has taken CBS out of the Weather Channel bidding, since Moonves says he will not be making any other big acquisitions in the immediate future.

RBR/TVBR observation: Some parts of CNET look like a nice fit with CBS, particularly TV.com and the consumer side of CNET’s techie news, product testing and blogs. But the heavy duty business-to-business tech stuff is more in the online trade publishing arena. Take it from us, that is a tough place to be right now.
Moonves insists that the CNET acquisition will be accretive to CBS from the get-go. But with few synergies that are going to reduce operating costs as the two companies become one, it is hard to see how a deal at 22 times EBITDA can be accretive to a company trading at a single digit multiple. The math doesn’t appear to us to work – and Wall Street also isn’t buying Moonves’ math.