JANA Partners LLC has released a detailed white paper analysis of CNET Networks Inc. (NASDAQ: CNET). As you can guess, the activist investor group is rather disappointed with CNET. The groups that JANA has added into its shareholder group hold approximately 14.9% of the voting power in the stock, and JANA’s stake is 5% of the total.
They argue that stopping the destruction of shareholder value at CNET will require fundamental strategic and operational change. Jana notes that implementing this change will require the type of experience and expertise it believes the Board nominees the group has proposed would add to CNET’s Board of Directors.
JANA has noted that the performance of the current board of directors has presided over the loss of more than half of CNET’s market value since a majority of current directors have been in place. CNET’s shares declined by -21%, -52%, and -25% in the one, two and three year periods ended March 28, 2008. It also wants the board to explain why shareholders would not benefit from Jana’s proposed changes.
JANA addresses its rejection of CNET’s offer of one of the seven board seats the group is seeking. It feels this would not bring the level of change needed at CNET. There are many other criticisms. CNET has failed to turn these assets into shareholder value and its own review was only initiated after outside pressure mounted. CNET has not taken necessary changes to protect the value of its strongest assets, instead expanding into new verticals. CNET needs comprehensive strategic and operational change to strengthen its core businesses and adapting to the modern Internet. The group wants new leadership to create significant new value for shareholders.
JANA has joined with Sandell Asset Management Corp., Paul Gardi of Alex Interactive Media, Spark Capital and Velocity Interactive Group in seeking to elect two individuals to replace the board members who are up
for re-election and to expand CNET’s board by five members and nominate individuals to fill those vacancies.
We frequently discuss restructurings, activist investor trends, IPO’s, back door plays into IPO’s, SPAC’s, spin-offs, and more on our open email distribution list. We also just covered CNET on our weekly "10 Stocks Under $10" subscriber letter yesterday. We aren’t quite as optimistic on the instant value creation, but JANA’s approach is one of long-term changes rather than short-term shareholder rewards at the expense of the long-haul.
More detailed information can be found on this particular situation at www.JANAGroupInfo.com.
Jon C. Ogg
April 1, 2008
Jon Ogg produces the Special Situation Investing Newsletter and he can be reached at firstname.lastname@example.org; he does not own securities in the companies he covers.