CBS buys CNET in $1.8 bil deal

Company boosts Web presence to U.S. top 10 status

CBS Corp. is ponying up $1.8 billion in cash to buy CNET Networks and join the ranks of the top 10 U.S. Internet companies.

While Wall Street noted that this is a high price target, particularly when it comes to CBS Corp.'s prudent acquisitions standards, the move is seen as the company's most aggressive push to date to become a true digital powerhouse.

Publicly traded CNET has grown beyond its popular tech info site of the same name to also include ZDNet, GameSpot.com, TV.com, Radio.com, MP3.com, Search.com, TechRepublic and other online brands.

CBS Corp. said the acquisition elevated its online reach to 54 million unduplicated unique users for the month of March based on comScore data and about 200 million users worldwide.

"There are very few opportunities to acquire a profitable, growing, well-managed Internet company like CNET Networks," CBS Corp. president and CEO Leslie Moonves said Thursday. By tripling its Internet activity via the deal, CBS is taking "a major leap forward" in the Web space, he added.

Moonves said the price is worth it because of CNET's profitability, complimentary assets, the continuing fast growth in online ad revenue and its international opportunities, including a profitable operation in China.

"The core businesses of CNET Networks and CBS Interactive represent near-perfect category symmetry in premium online content," CBS Interactive president Quincy Smith said. TV.com, with its 15 million unique visitors, and News.com will add CBS content, especially video, Smith said.

Analysts were surprised by the deal, which marks a 45% premium to CNET's stock price a day earlier. Several noted that CBS management had called the $1.65 billion that Google paid for YouTube too high. Investors on Thursday also signaled concern, pushing down CBS Class B shares 2.4% to $24.23.

However, several Street observers said CBS has elevated its online game. "The Street is ignoring the accretive and synergistic nature," said SMH Capital analyst David Miller, who estimates CNET will add 2 cents per share to CBS Corp.'s earnings per share this year and 6 cents next year.

CBS Corp. will make a cash tender offer for all shares of San Francisco-based CNET for $11.50 per share. The deal is expected to be completed in the third quarter.

CBS CFO Fred Reynolds said the company would then start breaking out financials for its interactive business, which he projects to grow revenue in the mid-teen percentage range in the coming years.

Forrester analyst James McQuivey said the combination could provide a more efficient platform for advertisers. CBS will now be able to sell advertising for more sites through one agency, which could amount to a "mini-Double Click model," he suggested.

Compared to Discovery's $250 million acquisition of HowStuffWorks last year, though, McQuivey noted that the synergies aren't as obvious. "I don't see that kind of fit between CBS properties and CNET properties," he said. "But if you're trying to create a network of ad-friendly sites, you don't necessarily need that."

Jefferies & Co. analyst Youssef Squali predicted that the CNET deal could "spark another round of M&A in the (online) space."

Alexander Woodson contributed to this report.
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