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JANA and CNET: what’s up with that?

March 15, 2008 on 4:04 am | In bnet, jobs, work | No Comments

I’ve had to explain this many times to different family and friends so I thought I’d write it out once and for all, with updates as things change. Here’s the short version:

A hedge fund is trying to take over CNET Networks, my employer. They have until summer to convince CNET shareholders that the company should change strategy and stop expanding into non-technology areas, such as entertainment, lifestyle, and business. I’ve spent most of the last two years working on the business prong of CNET’s strategy, so if the hedgies win my future employment is up for grabs.

Here’s the long version:

A group of Wall Street hedge funds, high-tech venture capitalists, plus one Silicon Valley serial entrepreneur, banded together to acquire a big chunk of CNET Networks. The big money outfit in this group is JANA Partners, but the former entrepreneur a guy named Paul Gardi, seems to be the visionary behind this move.

Their goal is to take over CNET’s board of directors, remove our current management, and change the strategy of the media company. Publicly they haven’t disclosed much about what they would change other than to refocus on technology content and improve the moneymaking operations of CNET.

JANA currently owns about 10% of CNET — an investment greater than $100 million — so by any fair-minded shareholder standard they deserve a hearing. Their partners in this effort control even more shares, so as a bloc they get a big say. Acquiring big chunks of a company and using that voting power to force changes in strategy or management is the formula for “activist shareholders,” which this group certainly is. (Similar activist-shareholder groups are taking a run at the New York Times, tried and failed to shift focus at Time Warner, and succeeded with disastrous results at Knight-Ridder.)

Their efforts started last fall and became public in January. The shareholder meeting where their efforts will succeed or fail is this summer, I believe in June. Between now and then, JANA must convince two-thirds of the CNET shareholders that their proposed changes are a good idea. Given that the JANA bloc controls about 20% of the shares, it seems to me they really just have to convince 50% of the other shareholders to join their cause. CNET’s executive management, on the other hand, must convince the shareholders that current strategy is right and current management is aggressive and profit-minded enough to raise the stock price.

I expect that between now and the shareholder meeting there will be an increasingly public airing of claims and counterclaims, promises and threats. I don’t know if this will be a formal proxy battle or just a broader hearts-and-minds campaign. Since CNET’s stock has performed poorly for the last two years, some shareholders may be inclined to try anything to change the status quo.