CBS/Cnet Deal - Good Price/Great Fit

CBS (NYSE:CBS) announced today that it will acquire CNET Networks (NASDAQ:CNET) for $11 a share, or $1.8B, which is a big bump up from the $7-8 where Cnet has been trading in recent times.  Some analysts are questioning how CBS justified a price that high, but I think it's a great fit, and it's a really well thought-out purchase.

Like all traditional media companies (newspaper, magazine, radio, broadcast), CBS's core business is declining - no matter what CBS does, fewer people will listen to the radio and watch CBS tomorrow than they do today, although their cable businesses are doing fine.  So, the company either needs to exit those declining businesses or find complementary ones which are growing faster.  In order to do this, they need to pay higher valuation multiples than their core businesses, which is why they can justify the Cnet deal and price.   

To not do a deal like this would simply make future deals more expensive, as all traditional media companies are finding out as they watch their core assets decline - e.g. what are the big magazine conglomerates doing, waiting for their circulation to totally disappear before the make a move?  There is always risk in acquisitions, but this $1.8B bet comes with an actual business attached to it, unlike the Google YouTube deal for $1.6B, so it's a fairly good bet.

With a market cap of $16.5B, CBS needed a core, complementary Internet asset that was big enough to make a difference to their company, but not so large that a failure would pull down the entire firm, a la AOL/Time Warner.   With Cnet in house by next quarter, they can then go back to smaller, bolt-on acquisitions which fit nicely into their larger Internet strategy, which looked a little random before this deal.  On the CNet side, they (and the shareholders) get a strong price for what I regard as a top notch set of properties, and they finally get away from this unrelenting proxy fight being pursued by a group of hedge funds - it's truly a win win on both sides.

Knowing the players at both firms, the culture fit is strong, there are tons of synergies across the offline and online media groups, and on the selfish front, it means SF's only true media company lands in good hands.