The showdown between CNET and its largest shareholder, Jana Partners, may be entering a new phase. Following a tense meeting last week with Jana representatives, there is now a good chance CNET’s hard stance against giving Jana any board seats (despite the consortium owning a 21 percent share in the company) is about to vaporize. According to a source close to the situation (updated below, now confirmed), CNET was trying to block a lawsuit Jana has filed to fill the board with its proposed slate of directors. Jana wants to increase the number of board members from 8 to 13, and have the right to name 7 of them.
CNET was trying to block the suit on a technicality—apparently there was some question as to whether it had been filed properly. CNET was advised that it had a pretty strong case. So strong, in fact, that CEO Neil Ashe earlier this week offered Jana only one board seat because he was so confident the lawsuit would be blocked. But the judge didn’t agree.
So now his hand has been weakened considerably.
Update: Reuters has more here
Update 2: The text of the Delware court ruling:
DELAWARE COURT RULES IN FAVOR OF JANA PARTNERS’ RIGHT TO NOMINATE SEVEN DIRECTORS FOR BOARD OF CNET NETWORKS
NEW YORK, March 13, 2008 – JANA Partners LLC (“JANA”) announced today that the Delaware Court of Chancery has upheld the rights of an affiliate of JANA to nominate seven directors and propose other business at the 2008 Annual Meeting of Stockholders of CNET Networks, Inc. (Nasdaq: CNET). Following today’s ruling, JANA Managing Partner Barry Rosenstein issued the following statement:
“This is the first step towards putting aside the legal mechanisms CNET has relied on to fight our effort to create stockholder value, which have included a poison pill, golden parachutes and an attempt to prevent us from proposing new directors, an attempt which the court today rejected. We look forward to moving on to a substantive discussion of the need for change at CNET, and why we believe our nominees have the expertise and experience needed to reverse CNET’s ongoing underperformance. We hope that the company will now put aside their efforts to thwart this debate with technicalities and instead engage stockholders in a dialogue about the company’s future.”
On January 7, 2008 CNET claimed that the efforts of a JANA affiliate to nominate two directors for election to the open board seats at CNET’s 2008 Annual Stockholders Meeting and to add five additional nominees to the board of directors were “improper” under its bylaws and sought to deny its right as a stockholder to do so, after which this affiliate of JANA filed suit in Delaware challenging the company’s interpretation of its bylaws. The Delaware Court of Chancery today rejected CNET’s arguments and affirmed JANA’s affiliate’s right to have its nominations and proposals considered by stockholders at CNET’s Annual Meeting.
Background
JANA has joined with Sandell Asset Management Corp. (“Sandell”), Paul Gardi of Alex Interactive Media, Spark Capital and Velocity Interactive Group in seeking to elect two individuals to replace the board members who are up for re-election at CNET’s 2008 stockholders meeting and to expand CNET’s board by five members and nominate individuals to fill those vacancies.
JANA Partners LLC is a multi-billion dollar investment management firm founded in 2001 by Barry Rosenstein. JANA has on numerous occasions, alone or with other shareholders, challenged management to focus on creating shareholder value, including with respect to Kerr-McGee Corporation, Time Warner, Titan International, TD Ameritrade and The Houston Exploration Company.
Alex Interactive Media, LLC (“AIM”) is a private company focused on leveraging its domain expertise in digital media and related industries.
Spark Capital is a venture capital fund focused on building businesses that transform the distribution, management and monetization of media and content, with experience in identifying and actively building market-leading companies in sectors including infrastructure (Qtera, RiverDelta, Aether Systems, Broadbus and BigBand), networks (College Sports Television, TVONE and XCOM) and services (Akamai and the Platform). Spark Capital has over $600 million under management, and is based in Boston, Massachusetts.
Velocity Interactive Group, LLC is an investment firm that focuses on digital media and communications. Velocity Interactive Group has offices in Palo Alto, Los Angeles and New York.
Sandell Asset Management Corp., is a multi-billion dollar global investment management firm, founded by Thomas E. Sandell, that focuses on global corporate events and restructurings throughout North America, Continental Europe, the United Kingdom, Latin America and the Asia-Pacific theatres. Sandell frequently will take an “active involvement” in facilitating financial or organization improvements accruing to the benefit of investors.