Tuesday, May 20, 2008

Moonves' CBS Buys CNET ???

Since CBS's most recent spinoff, from Viacom, Les Moonves hasn't distinguished himself in providing superior total returns to shareholders. Granted, he's been at it just over two years. But the trend since the stock's peak in mid-2007, as the nearby Yahoo-sourced price chart for the network and the S&P500 Index, has been discouraging.

Thus, Moonves is apparently aiming to fix that with an acquisition of CNET.

Yahoo's profile of CNET portrays it as a rather widespread media content provider. On the surface, it at least seems connected to businesses which CBS ought to understand.

However, Friday's Wall Street Journal article about the proposed acquisition casts doubt on the wisdom of Moonves' latest plan.

According to the Journal,

"CBS's $1.8 billion cash acquisition of Web site operator
CNET Networks Inc. is reminiscent of the tech-stock bubble. The CBS offer values CNET at a whopping 22 times Ebitda, according to Capital IQ data. CBS trades at about seven times. What's more, CBS is paying this fat premium when the advertising market is slowing.

Why is CBS overpaying for an asset with a questionable outlook? Look no further than CBS's share price. CBS shares have fallen nearly 30% from their peak last summer. (Fortunately for Mr. Moonves, who took home $36.8 million last year, his compensation has only been recently linked to CBS's share-price performance.)"

The article pulls no punches, does it? Comparing this acquisition to a tech-bubble, all-cash deal is no blessing. Further, if you look at the nearby Yahoo-sourced price chart for CBS, CNET and the S&P500 Index for the past five years, it's clear that, as mediocre as Moonves has performed with CBS, CNET has done even worse in the past 2+ years. Its peak was clearly over two years ago.
On the subject of compensation, I can readily agree with the Journal writer's sentiments. Having banked over $30MM, I would now assign Moonves no motivation whatsoever to enrich his shareholders. He's likely just in this for ego and pride.
For example, the article continues,
"To jumpstart CBS's share price Mr. Moonves wants to create some Internet buzz. He tried the same trick a few years ago, buying CSTV Networks Inc., which operates a college-sports cable channel and numerous Web sites, for $325 million. The network was supposed to complement CBS's other sports operations but was unable to get sufficient distribution and has languished.

Beyond the high price for CNET, it's difficult to see any real synergies between CNET and CBS's existing portfolio of Web properties. CNET is based in San Francisco and CBS's Web operations are concentrated in New York. So there's not much room to save on overhead. It's difficult to see why CBS, which is at its core a broadcaster, will have better luck in monetizing CNET's Web properties than CNET did."
I would concur. While the online media business, per se, is at least close to CBS's broadcast businesses, it's not quite the same thing. And, if anything, the internet argues, as I've written before, for the destruction of any broadcast value beyond local news and information. The actual value of a broadcast network like CBS is rapidly falling.
As such, Moonves seems to be engaging in the sort of game in which a CEO, seeing a dying market for his business, uses a form of sleight-of-hand to trade his shareholders' cash for other assets, the better with which to prolong his own corporate life as a CEO.
Shameful, but it happens all the time. Moonves isn't the first CEO to try this trick, and, sadly, thanks to the modern publicly-held corporation, he most assuredly won't be the last.

No comments: