Filed under: Deals, World wide web, Viacom (VIA), CBS Corp ‘B’ (CBS)
So the massive news on Thursday was CBS‘ (NYSE: CBS) hefty $1.8 billion buy of CNET (NASDAQ: CNET). Douglas McIntyre already explained why this was such a “weird deal” in an excellent article that you can read here. I’d like to expand on that thinking a bit by asking if it should have been Viacom (NYSE: VIA), as opposed to CBS, in the buying seat.
Remember “old Viacom”? Old Viacom was composed of CBS and “new Viacom”, the latter being the Viacom of this day. I know, confusing, but that’s how things are when a massive media conglomerate splits in two. Anyway, there was a general mandate given to both companies, one that basically said the logic of CBS being an entity that focuses on cash flows and dividend increases while new Viacom would focus on acquisitions to promote capital appreciation of the company’s stock. Sure enough, the yield on CBS tells the tale perfectly.
So, I have to ask, what gives? I mean, a check of CBS’ latest 10K shows that the broadcaster generated $2.2 billion in operational cash flow in 2007. I think paying $1.8 billion for anything, let alone a questionable asset vis a vis CBS’ core media competencies, might be too much given CBS’ mission to return a lot of value to shareholders over the long-term in the form of dividends.
And, since Viacom is the acquirer, maybe CNET should have been its target. I’m not necessarily saying Viacom should have fooled around with CNET either, but I just see more synergies between CNET and Viacom than I do between CBS and CNET. One quick example would be Viacom’s intense efforts to invest in video games, both casual and not-so-casual. Viacom owns the Rock Band brand, and has done well with it. CNET owns GameSpot and MP3.com, and from where I sit, I simply would see more of a fit with Viacom. CBS should just worry about growing ratings at its major broadcasting asset.
But, the die is cast it seems; as deal expert Tom Taulli pointed out, “old media” has a lot of money to spend on new media, so transactions like this should be expected. If I were a shareholder of CNET, I’d cash out and call it a day, and maybe even try to figure out what the next Internet-related buyout will be (for an opinion on that, check out this piece by Peter Cohan). If you’re a shareholder of CBS, keep a watch on management and make sure they don’t do too many pricey acquisitions such as this. Make sure they focus on the cash flow and the dividend.
Disclosure: I don’t own shares in any company mentioned here; positions can change at any time.
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