UPDATE 1-Activists unveil turnaround proposal for CNET
(Adds CNET response; share price)
SAN FRANCISCO, April 1 (Reuters) - A group of activist investors led by Jana Partners unveiled a detailed plan on Tuesday to boost CNET Networks Inc's CNET.O earnings and rejected the online media company's offer of one board seat to settle their dispute.
The group, which has been fighting to win control of CNET's board, said in a 38-page proposal that the investment banking backgrounds of CNET Chief Executive Neil Ashe and Chief Financial Officer Zander Lurie make them ill-suited to spearhead the company's turnaround.
CNET's management and board lack the urgency and expertise required to turn CNET from a "Web 1.0" company into one that can keep abreast of peers such as Yahoo Inc (YHOO.O), which are increasingly making money from online advertising and sophisticated search, the Jana group said.
"We believe CNET's board and senior management lack the industry-specific experience and expertise to stop this shareholder value destruction," the investors said.
Jana owns about 10 percent of CNET's voting stock.
The group's proposal calls for a range of measures, including tying up with a popular online advertising platform such as Google Inc's (GOOG.O) Doubleclick, revamping search and building social networking features for CNET's various Web sites.
The group said these measures will bring more visitors and help CNET sell targeted and contextual advertisements.
Based on an external review of CNET's business, the group said these and other measures could push its 2009 earnings before interest, tax, depreciation and amortization (EBIDTA) to $183 million, 60 percent higher than current Wall Street projections.
CNET said it will review Jana's proposed strategies and implement any that create shareholder value. But it said a preliminary review revealed the proposal contains "numerous misstatements and is misleading in many respects." It will respond in "due course," CNET said.
CNET, best known for its technology news Web site, News.com, faces stiff competition from savvy tech blogs such as Michael Arrington's Techcrunch.com. Analysts have also questioned its ability to generate new cash, as its share price nose-dived from a dotcom-era peak of nearly $80 to less than $10 in the past 52 weeks.
CNET shares rose 4.9 percent to close at $7.45 in Nasdaq trading.
Jana and its partners -- investment funds Sandell Asset Management and Velocity Interactive Management, technology entrepreneur Paul Gardi of Alex Interactive Media, and venture capital firm Spark Capital -- are seeking to replace two of CNET's eight directors who are up for election, expand the board by five members and fill those five seats with its nominees.
CNET has been battling the dissidents since January. The company suffered a setback in March when the Delaware Supreme Court ruled the Jana group could nominate directors without violating company bylaws. CNET has said it will appeal the decision.
The company said last week it would cut 120 jobs, or 10 percent of its work force, in a restructuring to help it focus on long-term growth.
The Jana group felt it was necessary to issue a detailed proposal for CNET because the group is pushing for a complete turnaround rather than piecemeal changes, according to several people familiar with the group's thinking.
That is why the group turned down a recent offer by CNET to settle, one of the sources said. In March, CNET offered one board seat to former AOL CEO Jon Miller, agreed to retain a 'Search Engine Optimization' consultant and said it would add an additional director to be named later, according to the proposal.
CNET has called the group's motives "opportunistic," but the investors say their seven nominees have different affiliations and the group as a whole therefore does not stand to make a quick profit.
The group's nominees include Miller and tech entrepreneur Paul Gardi, formerly a senior executive at IAC/Interactive Corp (IACI.O). (Editing by John Wallace/Andre Grenon)
