Saudi Arabia to boost oil output

Saudi Arabia Says It Will Boost Oil Output in June (Update5)

By Janine Zacharia

May 16 (Bloomberg) — Saudi Arabia, the world’s largest oil exporter, will increase crude production next month in response to rising demand from its customers and a request by U.S. President George W. Bush to ease the strain of record prices.

The country will raise output by 300,000 barrels a day, or 3.3 percent, to 9.45 million barrels a day in June, Saudi Oil Minister Ali al-Naimi said in Riyadh today, following a meeting between Bush and Saudi Arabia’s King Abdullah.

“The president has asked the Saudis to produce oil to meet demand,” Tony Fratto, a White House spokesman, said in Riyadh after Naimi’s remarks. “He was reassured by the king that they have increased production as the market demands.”

Crude oil futures traded in New York rose to a record about one hour after Bush landed in Saudi Arabia today. They later settled at $126.29, an increase of $2.17, or 1.7 percent, though below the day’s high after the promise to boost production. Saudi Arabia is the world’s largest oil exporter and the most influential member of OPEC.

“It’s just a token increase but it shows that the Saudis realize just how important it is for the president to not come back empty handed,” said Peter Beutel, president of Cameron Hanover Inc. in New Canaan, Connecticut. “This is about a lot more than oil. The special relationship between the countries is at stake.”

Earlier today, before Naimi’s remarks, U.S. National Security Adviser Stephen Hadley said the Saudi policy was to supply extra oil only if customers needed it.

Saudi Increase

“On May 10 we increased our response to our customers by 300,000 barrels because they asked for it,” al-Naimi said later. “So our production for June will be 9.45 million barrels per day. This is the request of about 50 customers worldwide.”

In another sign of cooperation, Saudi Aramco, the kingdom’s state-run oil company, and U.S.-based ConocoPhillips said they will build and own a 400,000 barrel-a-day refinery in Yanbu on the Saudi Red Sea Coast, to be completed by 2013.

Oil prices have doubled in the past year on surging demand, supply disruptions in places such as Nigeria and commodity purchases by investors as a hedge against a weakening U.S. dollar. The price surge threatens to accelerate inflation and curb economic growth.

“The Saudis have engineered this to make it look like they’re doing something to help, but the market is rightfully skeptical,” said Robert Laughlin, a senior broker at MF Global Ltd. in London.

Filling the Gap

“As far as the U.S. is concerned, most of the 300,000 came from the U.S. and we responded to it on May 10,” al-Naimi said, referring to the kingdom’s production increase. Saudi Arabia is making up for output losses from other countries, such as Nigeria, Venezuela and Mexico, he said.

Production from the 13 members of the Organization of Petroleum Exporting Countries fell by about 390,000 barrels a day in April, to 31.7 million barrels a day, largely because of declines in Nigeria, according to a monthly report yesterday from OPEC’s secretariat, which cited estimates from secondary sources.

Some Nigeria production was lost because of a strike at Exxon Mobil Corp.’s facilities and because of militant attacks on Royal Dutch Shell Plc pipelines. The West African nation is usually one of the largest crude suppliers to the U.S.

Saudi Production

The same OPEC report said Saudi Arabia’s April production was 9.02 million barrels a day, down 37,000 barrels a day from a month earlier. Nigeria’s output fell by 251,000 barrels a day. The Saudi supply increase will offset declines last month, MF Global’s Laughlin said.

The Saudi oil minister said Bush was satisfied “because our response is positive. If you want to move more oil you need a buyer,” al-Naimi said at a press conference at the Saudi foreign ministry in Riyadh.

OPEC, which pumps more than 40 percent of the world’s oil, has kept output targets unchanged during its past three meetings, on March 5, Feb. 1 and Dec. 5.

“I don’t think there is a need for more oil” from OPEC, Qatari Oil Minister Abdullah al-Attiyah said in a telephone interview. “My customers aren’t asking for more oil.”

The Qatari minister said recent reports from the International Energy Agency have shown reductions in demand forecasts and added that there is “no need” for OPEC to meet before its next scheduled conference on Sept. 9.

He declined to comment on Saudi Arabia’s statement, saying it was a “sovereign” decision.

“This is good news for world oil markets and good news for President Bush, who appears to have used his personal relationship with King Abdullah to overcome Saudi reluctance to raise oil production and put downward pressure on world oil prices,” said Jim Phillips, a Middle East analyst at the Heritage Foundation in Washington.

Saudi Arabia plans to boost oil production capacity to 12.5 million barrels a day by 2009, Naimi said, reiterating previous comments.

To contact the reporters on this story: Janine Zacharia in Riyadh at jzacharia@bloomberg.net.

Last Updated: May 16, 2008 18:56 EDT

Stocks end week mixed, but S&P index rises 2.7 percent

AP
Stocks pare losses to finish mixed after oil spikes
Friday May 16, 6:00 pm ET
By Tim Paradis, AP Business Writer

Stocks end mixed as investors digest spike in oil prices, surprise gain in home construction

NEW YORK (AP) — Wall Street capped a week of big gains with modest moves Friday as investors grappled with surging energy prices that overshadowed news of a surprise increase in home construction.
 

Investors hoping for an economic rebound in the second half of the year and searching for signs that the housing market is bottoming got some relief before the market opened: the Commerce Department’s report that home construction jumped 8.2 percent in April.

But investors were clearly sidetracked for much of the session by energy prices and their effect on consumer spending, which accounts for more than two-thirds of U.S. economic activity. The price of a barrel of oil spiked to $127.82 for a new trading record on Friday.

The market’s concerns appeared well-founded, with news that the continuing rise in energy and food costs is weighing on the mood of consumers. The Reuters/University of Michigan consumer sentiment reading fell to 59.5 in May — the weakest reading since June 1980.

Steve Neimeth, portfolio manager for AIG SunAmerica mutual funds, said investors are worried that rising energy prices could derail any rebound in the economy.

“Although the housing numbers today were generally positive, the Michigan survey was quite poor and, more importantly, a continued spike in energy and commodities is causing investors to second-guess the second-half recovery,” he said. “If oil and gas prices continue to go up consumers are unlikely to have the spending ability in the second half.”

But despite the uneasiness over energy prices, stocks posted strong gains for the week. The broader market, as measured by the Standard & Poor’s 500 index, rose 2.7 percent for the week. The S&P 500 index ticked up 1.78, or 0.13 percent, to 1,425.35 on Friday.

The Dow Jones industrial average slipped 5.86, or 0.05 percent, Friday, closing at 12,986.80. For the week, the Dow rose 1.89 percent.

The Nasdaq composite index fell 4.88, or 0.19 percent, to 2,528.85 Friday, but still jumped 3.41 percent for the week. The S&P 500 and Nasdaq remain at five-month highs.

Advancing issues outnumbered decliners by about 8 to 7 on the New York Stock Exchange, where consolidated volume amounted to 3.74 billion shares, up from 3.73 billion Thursday.

Government bond prices slipped Friday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.85 percent from 3.82 percent late Thursday.

Gold prices rose, while the dollar fell against other major currencies.

Investors have been tracking energy prices closely, with the average U.S. retail price of gasoline around $3.787 per gallon and the average price of diesel fuel near $4.482 a gallon. Consumers and businesses alike are struggling with high commodities costs, despite mild overall readings on inflation, so Wall Street remains concerned about spending on discretionary items.

Light, sweet crude rose $2.17 to settle at a record close of $126.29 per barrel ahead of the start of the summer driving season and following supply disruptions in China. Oil held to gains even after Saudi Arabia’s Oil Minister said the country boosted production by 300,000 barrels a day last week in response to requests from customers. And the Energy Department said it would stop adding to the nation’s Strategic Petroleum Reserve for six months starting July 1.

David Kelly, chief market strategist at JPMorgan Funds, said investors will likely continue to worry about oil prices but that there is a sense that if the economy is in a recession it likely will prove to be a mild one. He said stocks have been able to advance from their mid-March lows because fears of worsening troubles in the credit market have receded somewhat.

“I think oil is still the worrying wild card in all of this but the central theme of this year is that we are gradually moving from the credit storm to the economic storm. At this stage the economic storm is essentially getting downgraded from a hurricane to a nor’easter,” he said.

Kelly said the government’s economic stimulus checks that have begun arriving in mailboxes this month should help consumers absorb increased energy prices and that the rebates are leaving consumers with extra money, even with higher gas prices.

The Russell 2000 index of smaller companies fell 2.21, or 0.30 percent, to 741.17.

Overseas, Japan’s Nikkei stock average slipped 0.23 percent. Britain’s FTSE 100 finished up 0.84 percent, Germany’s DAX index rose 1.07 percent, and France’s CAC-40 rose 0.41 percent.

The Dow Jones industrial average ended the week up 240.92, or 1.89 percent, at 12,986.80. The Standard & Poor’s 500 index finished up 37.07, or 2.67 percent, at 1,425.35. The Nasdaq composite index ended the week up 83.33, or 3.41 percent, at 2,528.85.

The Russell 2000 index finished the week up 21.12, or 2.93 percent, at 741.17.

The Dow Jones Wilshire 5000 Composite Index — a free-float weighted index that measures 5,000 U.S. based companies — ended Friday at 14,423.77, up 383.72 points, or 2.73 percent, for the week. A year ago, the index was at 15,223.89.

New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com

Housing starts unexpectedly rise 8.2 percent in April

ECONOMIC REPORT
Housing starts surge on condo construction
Single-family starts continue falling, touch 17-year low
WASHINGTON (MarketWatch) — U.S. home builders broke ground on 8.2% more homes in April, led by a 36% increase in multi-family units, the Commerce Department estimated Friday.
Housing starts rose to a seasonally adjusted annual rate of 1.032 million, far more than the 954,000 estimated for March or the 939,000 that economists surveyed by MarketWatch had been anticipating for April. See Economic Calendar.
It was the third increase in the past four months.
However, starts of single-family homes declined for the 12th straight month, falling 1.7% to a seasonally adjusted annual rate of 692,000, the lowest since January 1991. Read the full report.
The increase is certain to bolster the argument of those who see a bottom in the housing slump, a prerequisite for a return to a healthy banking system and economy.
“These figures strongly suggest that we are near the bottom,” wrote Ken Mayland, chief economist for ClearView Economics. “Most of the decline is already behind us.”
Others say that market suffers from a severe oversupply of homes and that the last thing the market needs is new construction.
“For the market to reach anything that looks relatively stable, we would need to see several more months of contraction” in single-family starts, said Joseph Brusuelas, chief economist for Merk Investments, who said the decline in single-family starts was the best news in the report.
“One good month is not a recovery,” wrote Ian Shepherdson, chief economist for High Frequency Economics. “Listen to the builders; NAHB survey yesterday was hideous.”
On Thursday, the National Association of Home Builders reported builder sentiment fell in May, with builders’ assessment of current sales conditions ranking as the worst in the 23-year history of the survey. See full story.
Construction of new multi-family units is extremely volatile, with month-to-month increases or decreases of more than 20% showing up in government data for each of the past five months.
Meanwhile, building permits increased 4.9% in April to a seasonally adjusted annual rate of 978,000, with single-family permits rising 4% and multi-family permits growing 6.8%. It marked the first increase in single-family permits in 13 months.
In the past year, housing starts are down 31%. Single-family starts are down 42%, the largest decline in 17 years.
Similarly, building permits are down 34% in the past year, while single-family permits are down 40%.
The government cautions that its housing data are volatile and subject to large sampling and other statistical errors. In most months, the government can’t be sure whether starts increased or decreased, and it can take four months for a new trend in housing starts to emerge from the data.
In April, the standard error for starts was plus or minus 14.5%. For multi-family units, the margin of error was 42.5%. Large revisions are common.
Over the past four months, housing starts have averaged 1.04 million on an annualized basis, up from 1.03 million in the four months through March, the first increase in four-month average since last May.
More details
The number of housing units completed dropped 16% in April to an annual rate of 1 million, the lowest in 26 years.
Single-family completions fell 13% to 792,000 units, the fewest in 25 years. The number of single-family homes under construction fell 2.5% to 549,000, the lowest in 13 years.
During April, starts fell 13% in the Northeast but rose by 24% in the Midwest, by 4% in the South and by 19% in the West, according to the government’s data. End of Story
Rex Nutting is Washington bureau chief of MarketWatch.

Consumer confidence plunges to 28-year low

Reuters
Consumers’ mood grim as early-80s in May
Friday May 16, 10:34 am ET
By Burton Frierson

NEW YORK (Reuters) – Consumer confidence tumbled to its lowest in 28 years this month, a survey showed on Friday, as short-term inflation expectations reached the highest levels since the stagflationary early 1980s.

The news heightens the dilemma for the Federal Reserve, which has bet that slowing economic growth will tame inflation pressures. The report also showed that lower-income households were the focus of the downturn in sentiment.

The Reuters/University of Michigan Surveys of Consumers’ preliminary index of confidence fell to 59.5 in May, the lowest since June 1980. In April it was at 62.6.

“Troubling all around, lower confidence and ongoing inflation worries,” said Ian Lyngen, interest rate strategist at RBS Greenwich Capital in Greenwich, Connecticut.

Stocks fell on Wall Street and the dollar also lost further ground versus the euro (EUR=) after the surprisingly weak consumer sentiment reading.

Government bonds, which benefit in times of economic deterioration, reversed early losses and turned higher.

The confidence index was well below economists’ median expectation of a reading of 62.0, according to a Reuters poll.

“Consumer confidence continued to slip in early May due to surging food and fuel prices,” the Surveys of Consumers statement said. “Record numbers of consumers viewed the economy in recession and saw little hope of recovery anytime soon.”

One-year inflation expectations surged to 5.2 percent — the highest since February 1982 — from 4.8 percent in April.

Also worrying for policy-makers at the Federal Reserve, five-year inflation expectations hit the highest since August 1996, edging up to 3.3 percent from April’s 3.2 percent.

The inflation measures challenge the Fed’s view that soaring commodity prices have not yet led to an increase in long-term expectations for price growth.

The report fuels worries that the United States could be entering the early days of a period of stagflation like the late 1970s and early 1980s, characterized by a sluggish economy and accelerated price growth.

The index of consumer expectations came in at 51.7 in May, the lowest since October 1990, amid the runup to the first Gulf War. In April it was 53.3.

The Surveys of Consumers also said the data indicate that consumption growth is likely to be 1 percent in 2008, “with the pace weakening in late 2008 and early 2009.”

(Reporting by Burton Frierson; Editing by Dan Grebler)

Oil prices hit record high at $128 per barrel

Oil price surges to record high near 128 dollars

LONDON (AFP) — The price of oil rocketed to a record high of 127.82 dollars per barrel on Friday, as US President George W. Bush prepared to urge Saudi Arabia to pump more crude, analysts said.

Friday’s record run for New York’s light sweet crude beat the previous all-time peak of 126.98, which was set Tuesday on worries about tight supplies despite an official downgrade to global oil demand growth.

After peaking at 127.98 dollars, New York’s main oil futures contract, light sweet crude for June delivery, stood at 127.43 dollars, up 3.31 dollars from Thursday’s close.

London’s Brent crude contract for June spiked to its own historic peak of 126.34 dollars on Friday, beating the record of 125.90 reached on May 9. It later Friday stood at 126.07, up 3.44 dollars.

Oil prices have risen by more than a quarter since the start of 2008, when they surged past 100 dollars a barrel for the first time.

US President George W. Bush arrived in Saudi Arabia from Israel on Friday for talks with the world’s biggest crude exporter on record oil prices that have hit Western consumers hard.

Bush’s Air Force One touched down shortly before 2:00 pm (1100 GMT) at Riyadh’s King Khaled international airport, where King Abdullah led a red-carpet welcome for the US president and his wife Laura.

Bush aides have said that, at more than 125 dollars a barrel, oil prices were set to top the agenda of his talks with Abdullah and other Saudi officials.

“The global oil market remains indeed structurally tight,” said Victor Shum, an analyst with energy consultancy Purvin and Gertz in Singapore.

“Even though demand growth is showing some weakness, supply growth is also not there. OPEC continues to restrain supply and production in non-OPEC states are not expected to be strong.”

Saudi Arabia is the main player in the 13-nation Organization of Petroleum Exporting Countries, which pumps 40 percent of the world’s oil.

On Thursday, OPEC trimmed its 2008 estimate of world oil demand growth, citing higher prices and slower economic momentum in major industrialized countries including the United States.

Global oil demand was projected to grow by 1.35 percent in 2008, compared with a previous estimate of 1.4 percent, OPEC said in a monthly survey.

The oil market was also supported by strong demand from China and a weak US currency.

Crude futures were also “gaining support from persistent supply concern,” said Sucden analyst Andrey Kryuchenkov on Friday.

Distillate imports by Petrochina are expected to rise by a third to 400,000 tonnes in June, as the Chinese oil giant moves to ensure energy supplies after Monday’s deadly 7.9-magnitude earthquake in Sichuan province cut its natural gas-generated power capacity.

Global distillate stocks — which include heating oil and diesel — are also being stretched by heightened buying in Europe, with a spate of refinery outages hampering supplies.

“Demand for distillates remains strong as Europe battles with the east for additional supplies,” said MF Global trader Robert Laughlin.

A softer tone in the dollar has also fuelled buying, as commodities priced in the greenback become cheaper for holders of alternative currencies.

On Tuesday, the International Energy Agency suggested growth in global oil demand would slow this year.

The IEA, an energy policy adviser to major industrialised countries, predicted that crude demand in 2008 would stand at 86.8 million barrels per day (bpd) — about 390,000 bpd less than its previous estimate given in April.

Icahn Begins Yahoo Board Battle

BusinessWeek

Microsoft Moves on Yahoo May 15, 2008, 12:10AM EST text size: TT

Icahn Begins Yahoo Board Battle

The billionaire investor proposed a slate of directors to replace Yahoo’s board, but will Microsoft take the bait?

As if an abbreviated bear hug from Microsoft (MSFT) weren’t enough, Yahoo (YHOO) now has a new foe: Carl Icahn. The billionaire corporate raider launched a battle to win control of the board of the embattled Internet pioneer, nominating a slate of 10 dissident directors that includes himself.

Icahn outlined his intentions in a May 15 letter to Yahoo Chairman Roy Bostock, faulting Yahoo for how it handled the takeover approach from Microsoft, which on May 3 walked away. “The board of directors of Yahoo has acted irrationally and lost the faith of shareholders and Microsoft,” Icahn wrote.

Nominees include Icahn lieutenant Keith Meister, Dallas Mavericks owner Mark Cuban, former Viacom (VIA) Chief Executive Frank Biondi Jr., and John Chapple, former chief executive of wireless carrier Nextel Partners, now owned by Sprint Nextel (S).

Expect July 3 Fireworks

In his scolding letter, Icahn says he was prompted by Yahoo shareholders who hope he’ll be able to negotiate a successful merger with Microsoft. The software maker abandoned its takeover bid after failing to agree with Yahoo on a price. Microsoft says it offered $33 a share while Yahoo held out for $37. “It is unconscionable that you have not allowed your shareholders to choose to accept an offer that represented a 72% premium over Yahoo’s closing price of $19.18 on the day before the initial Microsoft offer,” Icahn wrote.

The proxy battle could have a long-lasting impact on the future of Yahoo, already under pressure from investors dismayed by slowing growth in its core businesses amid competition from Web-search leader Google (GOOG). “I and many of your shareholders strongly believe that a combination between Yahoo and Microsoft would form a dynamic company and more importantly would be a force strong enough to compete with Google on the Internet,” Icahn wrote. May 15 was the deadline set by Yahoo for proposals to be considered at its July 3 shareholder meeting.

The challenge for Icahn and the new directors, if elected, is to entice Microsoft back into the fray. In announcing that it would drop its unsolicited $47.5 billion bid for Yahoo, Microsoft declined to launch a proxy fight itself. The company has also said it has moved on. Presumably Icahn has some sense that Microsoft is willing to reconsider a bid–one high enough for a savvy investor like himself to earn a tidy profit. At Microsoft’s last reported bid of $33, shares bought at the $27.14 close on May 14, up more than 5% from two days ago, would increase another 22%. Icahn’s gain would likely be even greater because he bought shares before the recent rise.

According to the letter, Icahn bought about 59 million Yahoo shares in the preceding 10 days. At the May 14 close, that holding would have been worth about $1.6 billion. Icahn also sought clearance from the Federal Trade Commission to buy as much as $2.5 billion worth of Yahoo stock.

Microsoft Reaction Is Unclear

Other nominees are Adam Dell, managing general partner of venture capital firm Impact Venture Partners; Harvard Law School professor Lucian Bebchuk; Edward Meyer, chief executive officer of investment management firm Ocean Road Advisors; Brian Posner, former CEO of asset management firm ClearBridge Advisors; and Robert Shaye, co-CEO of New Line Cinema, owned by Turner Broadcasting System.

Recent news reports indicated Icahn had not yet received a thumbs-up from Microsoft. Indeed, Microsoft may even be unhappy with Icahn’s interference, says John Aiken, managing director of Majestic Research. Microsoft eschewed its own proxy fight amid concern it would result in an exodus of talent or push Yahoo to seek alliances, such as with Google, that would prove unattractive to Microsoft. What’s to say an Icahn-led proxy fight wouldn’t have the same effect?

On the other hand, Microsoft might welcome the pressure Icahn’s move would put on Yahoo, without Microsoft having to do the dirty work itself. If Icahn is successful in getting his own slate elected–or at least pressuring Yahoo to back some new directors he controls–he could kill the poison pill that would make the company prohibitively expensive to a hostile bidder. That would pave the way for Microsoft to return with a friendly bid. “Microsoft remains the likely candidate,” says corporate governance attorney Claudia Allen, chair of Chicago law firm Neal, Gerber & Eisenberg.

Risks in Icahn’s Move

Icahn, who in recent years has agitated for change at companies including Motorola (MOT), has some wind at his back. Some high-profile shareholders such as Gordon Crawford at Capital Research & Management have expressed unusually public criticisms of Yahoo and its board for not coming to an agreement with Microsoft.

So have some smaller shareholders, such as Eric Jackson, who led a campaign to unseat former Yahoo Chief Executive Terry Semel last year and recently told BusinessWeek he’s unhappy with co-founder and current CEO Jerry Yang. “If I’m a small shareholder, I would appreciate Carl Icahn forcing the issue,” says Espen Eckbo, founding director of the Center for Corporate Governance at Dartmouth College’s Tuck School of Business.

Presumably Icahn would want to get the highest possible price for Yahoo. However, it’s uncertain that would result from a proxy fight alone. Icahn’s move, says Eckbo, could end up reducing Yahoo’s bargaining position if it drags on and results in an outflow of talent or somehow makes Microsoft less likely to revisit a bid. So Icahn likely would want to move quickly to get the two companies together.

Ask.com’s “Extraordinary Opportunity”

Icahn’s other options for extracting further value from a Yahoo stake appear limited. Various other possible deals, such as Yahoo alliances with Google on search ads or with Time Warner’s (TWX) AOL unit or News Corp.’s (NWS) MySpace unit, haven’t materialized yet. Yahoo also holds some valuable stakes in overseas Internet companies such as China’s Alibaba. But analysts have indicated that none of those options would likely hike Yahoo’s value to the $33-a-share level that Microsoft said was its last offer.

Rivals of Yahoo and Microsoft, including Google and a raft of smaller competitors, are poised to take advantage of the current uncertainty. “It’s an extraordinary opportunity for Ask.com,” says Jim Safka, CEO of the small search site owned by IAC/InterActiveCorp. (IACI). “We’re not going to miss a beat trying to exploit the distraction.”

Ultimately, says Aiken, “Most people believe that Microsoft at some point will get the deal done.” But the road to a Yahoo acquisition clearly has a few more twists and turns.

Hof is BusinessWeek‘s Silicon Valley bureau chief .

Posted in Uncategorized | 1 Reply

CBS to buy CNet for $1.8 billion

CBS to buy online pioneer CNet for $1.8 billion
NEW YORK (MarketWatch) — CBS Corp. will acquire CNet Networks Inc., a pioneering online provider of technology news and product reviews, for $1.8 billion cash, as the TV broadcasting giant took another step to use the Internet to rev up its growth.
CBS (CBS

CBS Corp New
Sponsored by:

CBS) said it would pay $11.50 a share, a 45% premium to where CNet (CNET

cnet networks inc com
Sponsored by:

CNET) shares traded before the deal was announced. San Francisco-based CNet — target of a months-long pressure campaign by activist investors — operates Web sites including news.com, ZDNet, GameSpot.com, TV.com and mp3.com.

Investors reacted to the news by sending CNet’s stock up $3.44, or 43%, to $11.39 on heavy volume of 60 million shares. CNet’s 52-week high of $9.88 was set last May. CBS shares fell 3.4% to $23.98.
CBS said the deal provides another foothold into new advertising markets while also helping with its effort to gain a higher profile on the Internet.
“CNet Networks will add a tremendous platform to extend our complementary entertainment, news, sports, music and information content to a whole new global audience,” Leslie Moonves, chief executive of CBS, said in a statement. “Together, CBS and CNet Networks will have significant additional exposure to the fastest-growing advertising sector and can accelerate our growth through a number of new content, promotion and advertising initiatives.”
Upon closing, CNet Networks’ sites will be combined with CBS’s existing Internet unit, which oversees CBS.com, CBSSports.com, MaxPreps.com, CBSNews.com, last.fm, Wallstrip and MobLogic.
Analysts cautioned while CBS stands to benefit from the move, the premium it’s offering may be questionable.
Chart of CNET
“It’s a very efficient way for CBS to expand its advertising reach, by offering CNet advertisers the chance to bundle ad buys across more of its properties,” said Sarah Rotman Epps, an analyst at Forrester Research.
However, CBS could be overpaying for CNet’s aggregate monthly audience of more than 140 million users, Epps said.
Underscoring the risks of the deal, Jason Bazinet of Citigroup pointed that the overall advertising climate has been “sluggish” due to a weakened U.S. economy.
The key challenge for CBS, said Bazinet, will be how to sustain the premium rates CNet’s sites have been able to charge advertisers. He estimated that CNet has commanded about $12 per thousand page views, “well above” rates earned by rival Web sites.
In recent months, CNet has been locked in a battle with the large hedge fund Jana Partners over the direction of the company. The fund, which obtained a 10% stake in CNet’s voting stock, was pushing management to alter its strategy to reverse a slowdown in growth.
Jana Partners and other firms including Spark Capital and Sandell Asset Management Corp. have been pushing for greater control of the company. The firms charge that CNet has underperformed peers and is run inefficiently.
CNet has struggled to deflect the funds’ overtures, and contested their ability to nominate directors in a Delaware court. However, the court ruled earlier this month that the funds may proceed with their nominations.
With regard to the CBS deal, a Jana Partners spokesman said the fund is “reviewing the transaction.”
By joining with CBS, CNet might acquire the financial muscle and other means to better grapple with emerging rivals covering technology trends such as TechCrunch, a popular blogging site.
Needham analyst Mark May called the deal “a good exit for CNet shareholders,” as CNet has only managed “modest growth” in recent years. He adds that while CBS could be seen as overpaying, “the strategic fit appears good.”
CNet’s board has approved the deal and recommended that stockholders accept the tender offer and tender their shares. The transaction is expected to close in the third quarter. End of Story
Steve Gelsi is a reporter for MarketWatch in New York.
David B. Wilkerson is a reporter for MarketWatch in Chicago.
John Letzing is a MarketWatch reporter based in San Francisco.