I thought I would start shedding light on a few securities that I find promising. I'll try to do this about once a week. One stock that's on my radar is Chicago Bridge & Iron Co (CBI). Chicago Bridge is a dutch company who is a supplier and construction engineering company for oil and gas. This should be a great way to cash in on rising oil prices. I've set my price target at $60.
Tuesday, May 27, 2008
Laveranues Picks
I thought I would start shedding light on a few securities that I find promising. I'll try to do this about once a week. One stock that's on my radar is Chicago Bridge & Iron Co (CBI). Chicago Bridge is a dutch company who is a supplier and construction engineering company for oil and gas. This should be a great way to cash in on rising oil prices. I've set my price target at $60.
Thursday, May 22, 2008
Ford: Fewer trucks, more losses
By Chris Isidore, CNNMoney.com senior writer
NEW YORK (CNNMoney.com) - Ford Motor Co. cited record-high gas prices in announcing Thursday that it will cut production of pickups and SUVs and likely miss its long-held goal of returning its core North American auto unit to profitability next year. The company said it now hopes to break even companywide next year as overseas profits balance out losses at home. It also announced it would slash production of pickups and SUVs due to changing consumer demand.
"We saw a real change in the industry demand in pickups and SUV in the first two weeks of May," said Ford Chief Executive Alan Mulally. "It seems to us we reached a tipping point." Ford now believes that the change in vehicle choice is structural, not cyclical, Mulally said. Mulally said the company in July will detail longer-term changes, including personnel reductions. Ford had already offered buyouts and early retirement to all of its U.S. hourly employees. Ford (F, Fortune 500) said it will ramp up production of some other models such as cars and so called crossovers, a vehicle designed to bring a more car-like ride to SUVs. But the cuts in its pickup and SUV output will be greater than its increased car production. Ford trimmed an additional 20,000 vehicles, or 3%, from its North American plans, for the second quarter, putting its target at 690,000 vehicles. That will leave output down 15% from year-ago levels. The company said it now plans to produce between 510,000 and 540,000 units in the third quarter, down 15-20% from the same period last year, while the fourth-quarter production target is now between 590,000 and 630,000 units, down 2-8% from year-earlier levels. The shift is bad news for the nation's No. 3 automaker, which has lost money on its North American auto operations since 2005. The smaller cars for which it will ramp up production - Ford Focus, Fusion, Edge and Escape, the Mercury Milan and Mariner, as well as the Lincoln MKZ and Lincoln MKX - generally have lower prices and profit margins than the light truck models for which it is cutting production, such as the F-Series pickup, still the nation's best selling vehicle.
Also since the car models cannot be built on the same assembly lines where the pickups and SUV are built, the decreased production will mean more idled plants. Ford will have to pay employees who are not working while it increases the hours for those at car plants. Ford said it plans further manufacturing capacity realignments and additional cost reductions as part of its turnaround plan. Also Thursday Ford said it was not taking a position on a previously-announced proposal by investor Kirk Kerkorian to buy an increased stake in Ford.
NEW YORK (CNNMoney.com) - Ford Motor Co. cited record-high gas prices in announcing Thursday that it will cut production of pickups and SUVs and likely miss its long-held goal of returning its core North American auto unit to profitability next year. The company said it now hopes to break even companywide next year as overseas profits balance out losses at home. It also announced it would slash production of pickups and SUVs due to changing consumer demand."We saw a real change in the industry demand in pickups and SUV in the first two weeks of May," said Ford Chief Executive Alan Mulally. "It seems to us we reached a tipping point." Ford now believes that the change in vehicle choice is structural, not cyclical, Mulally said. Mulally said the company in July will detail longer-term changes, including personnel reductions. Ford had already offered buyouts and early retirement to all of its U.S. hourly employees. Ford (F, Fortune 500) said it will ramp up production of some other models such as cars and so called crossovers, a vehicle designed to bring a more car-like ride to SUVs. But the cuts in its pickup and SUV output will be greater than its increased car production. Ford trimmed an additional 20,000 vehicles, or 3%, from its North American plans, for the second quarter, putting its target at 690,000 vehicles. That will leave output down 15% from year-ago levels. The company said it now plans to produce between 510,000 and 540,000 units in the third quarter, down 15-20% from the same period last year, while the fourth-quarter production target is now between 590,000 and 630,000 units, down 2-8% from year-earlier levels. The shift is bad news for the nation's No. 3 automaker, which has lost money on its North American auto operations since 2005. The smaller cars for which it will ramp up production - Ford Focus, Fusion, Edge and Escape, the Mercury Milan and Mariner, as well as the Lincoln MKZ and Lincoln MKX - generally have lower prices and profit margins than the light truck models for which it is cutting production, such as the F-Series pickup, still the nation's best selling vehicle.
Also since the car models cannot be built on the same assembly lines where the pickups and SUV are built, the decreased production will mean more idled plants. Ford will have to pay employees who are not working while it increases the hours for those at car plants. Ford said it plans further manufacturing capacity realignments and additional cost reductions as part of its turnaround plan. Also Thursday Ford said it was not taking a position on a previously-announced proposal by investor Kirk Kerkorian to buy an increased stake in Ford.
Wednesday, May 21, 2008
Microsoft Creates Unified Ad Brand, Expands Mobile Offerings
ClickZ News) Microsoft SVP Brian McAndrews yesterday unveiled new mobile ad sales initiatives along with a new brand to house all the company's offerings to marketers: Microsoft Advertising.
The company is also planning to roll out a program to offer searchers cash back on the purchase of products discovered through its search interface. The move is partly an attempt to capture search share from Google, a more urgent goal in the wake of Microsoft's aborted bid to acquire Yahoo.
Speaking at the company's Advance08 advertising summit on its Redmond campus, McAndrews said the new brand will offer a "one stop shopping" experience for advertisers. The move is a baby step toward integrating the company's many free-floating ad units, including aQuantive's Avenue A/Razorfish, Atlas, and DrivePM brands; the AdECN exchange; and its own Search, MSN Network and MSN Ad Direct Response units.
To an extent, the brand consolidation is superficial. Internally those brands will continue to reside separately within the Advertiser and Publisher Solutions group, while Microsoft will use the Microsoft Advertising brand in its external business. "It's designed to let customers know that we're committed to making sense out of a complex environment, and that we have everything they need, all under one roof," McAndrews said in a statement.
McAndrews also touched on enhancements to the company's new Windows Live for Mobile environment, including the availability of display advertising on Windows Live Hotmail and Messenger for mobile in four markets: the U.S., U.K., France, and Spain. Microsoft claims 25 million people in the U.S. access Windows Live Hotmail and Windows Live Messenger on their mobile phones.
Microsoft also announced plans to offer mobile search advertisements on Live Search Mobile, currently in beta in the U.S. but scheduled for wider release in the second half of 2008. Advertisers will be able to create keyword campaigns through adCenter targeting users of Live Search Mobile.
More information is available at the Microsoft Advertising Web site.
In his presentation to some 400 advertisers, marketers, and industry professionals, McAndrews also discussed the signing of nearly 100 new publishers to the Microsoft platform, and key recent acquisitions such as those of Rapt, AdECN, and YaData, and the launch of Engagement Mapping, now in beta. Microsoft touts Engagement Mapping as a superior way to measure and optimize digital media spending, allowing advertisers to assign a share of conversions to non-search "touch points" and to assign them weight according to frequency, recency, ad size, and day part. McAndrews claimed the average user sees an average of 17 ads before clicking on one, but only the last one typically gets credit.
Advance08 will continue through tomorrow, with Live Search announcements due from SVP Satya Nadella, and an appearance by Bill Gates.
The company is also planning to roll out a program to offer searchers cash back on the purchase of products discovered through its search interface. The move is partly an attempt to capture search share from Google, a more urgent goal in the wake of Microsoft's aborted bid to acquire Yahoo.
Speaking at the company's Advance08 advertising summit on its Redmond campus, McAndrews said the new brand will offer a "one stop shopping" experience for advertisers. The move is a baby step toward integrating the company's many free-floating ad units, including aQuantive's Avenue A/Razorfish, Atlas, and DrivePM brands; the AdECN exchange; and its own Search, MSN Network and MSN Ad Direct Response units.
To an extent, the brand consolidation is superficial. Internally those brands will continue to reside separately within the Advertiser and Publisher Solutions group, while Microsoft will use the Microsoft Advertising brand in its external business. "It's designed to let customers know that we're committed to making sense out of a complex environment, and that we have everything they need, all under one roof," McAndrews said in a statement.
McAndrews also touched on enhancements to the company's new Windows Live for Mobile environment, including the availability of display advertising on Windows Live Hotmail and Messenger for mobile in four markets: the U.S., U.K., France, and Spain. Microsoft claims 25 million people in the U.S. access Windows Live Hotmail and Windows Live Messenger on their mobile phones.
Microsoft also announced plans to offer mobile search advertisements on Live Search Mobile, currently in beta in the U.S. but scheduled for wider release in the second half of 2008. Advertisers will be able to create keyword campaigns through adCenter targeting users of Live Search Mobile.
More information is available at the Microsoft Advertising Web site.
In his presentation to some 400 advertisers, marketers, and industry professionals, McAndrews also discussed the signing of nearly 100 new publishers to the Microsoft platform, and key recent acquisitions such as those of Rapt, AdECN, and YaData, and the launch of Engagement Mapping, now in beta. Microsoft touts Engagement Mapping as a superior way to measure and optimize digital media spending, allowing advertisers to assign a share of conversions to non-search "touch points" and to assign them weight according to frequency, recency, ad size, and day part. McAndrews claimed the average user sees an average of 17 ads before clicking on one, but only the last one typically gets credit.
Advance08 will continue through tomorrow, with Live Search announcements due from SVP Satya Nadella, and an appearance by Bill Gates.
Tuesday, May 20, 2008
Wall Street Brokerages Look To Shed Light on Dark Pools (Wall Street Journal)
By DONNA KARDOS
Goldman Sachs Group Inc., Morgan Stanley and UBS AG announced a series of deals that will allow their clients to share access to all three firms' pools of non-displayed liquidity as they try to address the growing complexity of market fragmentation amid so-called dark pools. The moves come as dark pools -- the secretive electronic trading networks that match buyers and sellers anonymously -- are booming in popularity as big institutional investors look for ways to trade blocks of stock without triggering ripples in the share price, as can happen on traditional stock markets such as the NYSE and Nasdaq Stock Market. But all that darkness is causing nightmares on Wall Street because there are now so many that using them is increasingly frustrating and time-consuming. The deals announced Tuesday allow algorithmic-trading orders of each firm to interact with the U.S. equity liquidity found in three of the nation's largest broker-dealer-operated dark pools -- Goldman Sachs' SIGMA X, Morgan Stanley's MS POOL and UBS' PIN ATS. Forty-two such U.S. trading networks now are competing for orders, up from seven dark pools five years ago, according to Tabb Group, a Westborough, Mass., research firm. Large brokerage firms, trading boutiques and even stock exchanges have designed systems that allow shares to be bought and sold out of the sight of prying eyes. "We're confident that providing our respective clients access to each other's liquidity will achieve even better crossing results for our clients in an increasingly fragmented market," said Greg Tusar, managing director of electronic trading for Goldman.
Goldman Sachs Group Inc., Morgan Stanley and UBS AG announced a series of deals that will allow their clients to share access to all three firms' pools of non-displayed liquidity as they try to address the growing complexity of market fragmentation amid so-called dark pools. The moves come as dark pools -- the secretive electronic trading networks that match buyers and sellers anonymously -- are booming in popularity as big institutional investors look for ways to trade blocks of stock without triggering ripples in the share price, as can happen on traditional stock markets such as the NYSE and Nasdaq Stock Market. But all that darkness is causing nightmares on Wall Street because there are now so many that using them is increasingly frustrating and time-consuming. The deals announced Tuesday allow algorithmic-trading orders of each firm to interact with the U.S. equity liquidity found in three of the nation's largest broker-dealer-operated dark pools -- Goldman Sachs' SIGMA X, Morgan Stanley's MS POOL and UBS' PIN ATS. Forty-two such U.S. trading networks now are competing for orders, up from seven dark pools five years ago, according to Tabb Group, a Westborough, Mass., research firm. Large brokerage firms, trading boutiques and even stock exchanges have designed systems that allow shares to be bought and sold out of the sight of prying eyes. "We're confident that providing our respective clients access to each other's liquidity will achieve even better crossing results for our clients in an increasingly fragmented market," said Greg Tusar, managing director of electronic trading for Goldman.
Monday, May 19, 2008
BCE shares fall on report saying buyout in trouble
BUSINESS WEEK - Shares of BCE Inc., the parent of Bell Canada, declined Monday following reports that its proposed $52 billion takeover by an investor group led by the Ontario Teachers' Pension Plan was in trouble. Citing unnamed people on both sides of the deal, the New York Times reported Monday that the banks that have committed to finance the deal wanted to re-negotiate the lending terms. Bill Fox, a spokesman for BCE, wouldn't comment on whether the banks are trying to re-negotiate the terms, but he said the company still expects the deal to close before the end of the second quarter.
"We have an agreement," Fox said. "I'm not going to comment on any aspect of the work being done to close the transaction. We're working to close on the basis of the terms set out in the agreement."
BCE's is not the first private equity deal to be affected by the credit crunch. Earlier this month, Clear Channel Communications Inc. agreed to take a lower price and slightly higher interest rates to settle a dispute with its lenders and allow its buyout to proceed. The BCE offer, valued at about $52 billion, includes debt, preferred equity and minority interests. According to the New York Times report, the banks backing the deal sent revised terms to the investor group, and these terms included higher interest rates, tighter loan restrictions and stronger protections for banks. The negotiations surrounding the deal, the report said, started to fray late Friday. Citigroup spokeswoman Danielle Romero-Apsilos declined to comment, saying it's too early to discuss what took place over the weekend regarding the BCE deal. Deborah Allen, a spokeswoman with Ontario Teachers Pension Fund, said they can't comment on discussions with the banks or BCE but said "we expect everyone will honor their commitments and we look forward to closing the transaction." Shares of BCE fell $2.02, or 5.2 percent, to $36.79 in afternoon trading. In the past 52 weeks, the stock has traded between $32.94 and $44.59.
"We have an agreement," Fox said. "I'm not going to comment on any aspect of the work being done to close the transaction. We're working to close on the basis of the terms set out in the agreement."
BCE's is not the first private equity deal to be affected by the credit crunch. Earlier this month, Clear Channel Communications Inc. agreed to take a lower price and slightly higher interest rates to settle a dispute with its lenders and allow its buyout to proceed. The BCE offer, valued at about $52 billion, includes debt, preferred equity and minority interests. According to the New York Times report, the banks backing the deal sent revised terms to the investor group, and these terms included higher interest rates, tighter loan restrictions and stronger protections for banks. The negotiations surrounding the deal, the report said, started to fray late Friday. Citigroup spokeswoman Danielle Romero-Apsilos declined to comment, saying it's too early to discuss what took place over the weekend regarding the BCE deal. Deborah Allen, a spokeswoman with Ontario Teachers Pension Fund, said they can't comment on discussions with the banks or BCE but said "we expect everyone will honor their commitments and we look forward to closing the transaction." Shares of BCE fell $2.02, or 5.2 percent, to $36.79 in afternoon trading. In the past 52 weeks, the stock has traded between $32.94 and $44.59.
Microsoft Revives Talks With Yahoo, Proposes New Deal
May 19 (Bloomberg) -- Microsoft Corp., the world's biggest software maker, revived the possibility of a deal with Yahoo! Inc. to challenge Google Inc. after failing to agree on a merger. Microsoft said yesterday it's exploring an agreement with Yahoo that stops short of a full takeover. Redmond, Washington- based Microsoft didn't elaborate on the proposal and said it ``reserves the right'' to reconsider its bid to buy all of Yahoo. The proposal gives Yahoo, owner of the second-most popular Web search engine, another chance to forge an agreement with Microsoft as investor Carl Icahn threatens to oust the Internet company's board. Yahoo Chief Executive Officer Jerry Yang demanded a higher price than Microsoft's $47.5 billion offer, prompting Microsoft CEO Steve Ballmer to abandon talks on May 3. ``Many analysts expected Microsoft to retrace its steps and seek a deal with Yahoo,'' said Raffaella Sommariva, a fund manager at AZ Fund Management SA in Luxembourg, which oversees the equivalent of $14.5 billion. ``An accord would be a great opportunity for both of them.''Yahoo said in a statement yesterday that it is open to pursuing any transaction in the best interest of investors. The company said it will continue to consider all of its options, including any proposal from Microsoft.
Yahoo Gains
Yahoo rose 82 cents, or 3 percent, to the equivalent of $28.48 at 9:31 a.m. in German trading from the U.S. close of $27.66 on May 16. Microsoft fell 20 cents to $29.79 in Germany from the U.S. close of $29.99 last week, while Google lost 66 cents to $579.41 in European trading. The agreement Microsoft and Yahoo are discussing involves Yahoo carrying search advertisements from Microsoft, the Wall Street Journal said yesterday, citing people familiar with the matter. That may be a way for Microsoft to scuttle talks between Yahoo and Google for a similar partnership, the newspaper said. Yahoo said in April it would run some Google ads next to its search results to boost sales. Google made as much as 70 percent more in sales from each query at the end of last year, Yahoo has said. Google CEO Eric Schmidt said on May 8 that while the test has ended, the two companies are on ``very friendly'' terms. ``Investors in Yahoo were very disappointed after Microsoft abandoned the talks,'' Sommariva said. ``Microsoft hasn't managed to reach a critical size with MSN to compete and Yahoo is battling with Google.''
`Strong Enough'
Icahn, who has the backing of Paulson & Co., the New York hedge-fund manager run by John Paulson, said last week that a combination of Microsoft and Yahoo would create ``a force strong enough'' to fight Google. Microsoft hasn't held talks with Icahn, a person familiar with the situation said yesterday. Icahn didn't return a call seeking comment. ``The best strategy for Yahoo is to embrace Microsoft,'' Troy Mastin, an analyst at William Blair & Co. in Chicago, said in a Bloomberg Television interview last week. He predicts Yahoo shares will perform in line with the market. ``If they structure a deal correctly, they might still be able to retain a lot of the control and autonomy that they have today.'' Microsoft spent three months wooing Yahoo to expand its Internet-search business and compete with Google in the $41 billion worldwide online advertising market. Microsoft said its next move will depend on discussions that may take place with Yahoo, shareholders of the two companies, or other parties. Microsoft spokesman Frank Shaw and Yahoo spokeswoman Tracy Schmaler declined to comment.
`Major New Initiative'
Microsoft and Yahoo had discussed a partnership designed to boost each other's share of the Web search and advertising market, people briefed on the discussions said last May. Separately, Microsoft said yesterday it will talk about a ``major new initiative'' in its search engine technology on May 21. Microsoft will also make changes to its online branding, which is ``fragmented and confusing,'' Kevin Johnson, president of Microsoft's Internet business, said in a memo to employees. The company will ``double down'' on investments in Europe, pursue small acquisitions and expand partnerships to build up the online business, he said. Online ad sales reached $41 billion worldwide last year, according to Piper Jaffray & Co. Microsoft projected that may almost double by 2010. Icahn disclosed that he owned 10 million Yahoo shares and options to buy 49 million more. He submitted his own slate of nominees for Yahoo's board, including himself, Dallas Mavericks owner Mark Cuban and former Viacom Inc. CEO Frank Biondi. All 10 of Yahoo's current directors are up for re-election at the annual meeting on July 3. The 72-year-old investor, who helped orchestrate Oracle Corp.'s takeover of BEA Systems Inc., said in a letter to Yahoo's board that directors had ``botched'' talks with Microsoft. Yahoo disputed the claim, saying Icahn had a ``significant misunderstanding'' of the discussions.
Thursday, May 15, 2008
Does purchasing CNET really help CBS?
By John Simons, writer
(Fortune) -- With its bold $1.8 billion purchase of CNET, CBS is making a play for ad dollars that are shifting to the Internet. But the company may be paying too much for a network of Web sites that won't address the conglomerate's main problem: an over-reliance on advertising dollars as a source of revenue.
CBS Corp. President and CEO Leslie Moonves announced Wednesday morning that the company will make a cash tender offer to purchase CNET Networks Inc. for $11.50 per share, or about $1.8 billion. CBS will add CNET to its collection of media holdings: a TV broadcast network, 29 local television stations, outdoor advertising displays, 140 radio stations, cable channels such as Showtime, and Simon & Schuster publishing.
CBS management touted various "synergies" that the acquisition will unlock, but on the conference call with investors Thursday, executives offered few specifics. In a release, Moonves pointed out that the CNET deal would give the company exposure to the "fastest-growing advertising sector" - Internet advertising.
The acquisition takes place against a backdrop of slower ad spending. Overall advertising outlays grew at their slowest pace in five years during the last quarter of 2007, and that pace is expected to continue, according to Bernstein Research. Internet advertising grew 27% during all of 2007 to $25.5 billion, according to research firm, International Data Corp. Even so, that $25.5 billion represents only 7% of all U.S. advertising.
CBS's online empire will be vast. CNET is the 10th most visited Internet site in terms of global unique users and ranks 17th in unique U.S. users. CBS will add CNET's Web sites such as BNET (a business news and information site), GameSpot, News.com, TV.com and MP3.com to its own online operations CBS.com, CBSNews.com, and CBSSports.com. "By acquiring CNET, CBS will more than double Internet revenue and [ad] inventory space," said Frederick Moran, an analyst with the Stanford Group. "CNET also brings a dedicated online sales force and online advertising technology to CBS."
However, the CNET acquisition doesn't address CBS's oft-discussed Achilles Heel. CBS is more vulnerable to an advertising downturn than any of its peers in the industry: 72% of the company's revenue last year was derived from ad dollars, compared to 44% for News Corp., 35% for Viacom, 23% for Disney and 19% for Time-Warner. Although online advertising is expected to grow this year by 20%, companies who derive greater portions of their income from subscriptions generally fare better in a slowing economy.
Some observers are concerned that CBS, which offered a 45% premium to CNET's Wednesday closing price of $7.95 per share, is paying too much for its new Internet baby. Doug Creutz, an analyst with Cowen and Company, put it delicately Thursday morning in a communication with clients, when he called the acquisition "value-dilutive".
Creutz doesn't believe that the synergies CBS has outlined thus far merit the high acquisition price the company will pay. "One of our concerns about CBS has been that management might pursue expensive acquisitions to offset concerns about secular trends in the company's core broadcast television and radio businesses," Creutz said. "The CNET deal underlines this concern." Creutz reaffirmed his "underperform" rating on CBS shares.
Citigroup analyst Jason Bazinet is equally nonplussed. He noted in a message sent to investors Thursday morning that CBS is clearly trying to build a formidable presence on the Web with the addition of an online content company that commands ad rates "well above rivals". However, Bazinet observed, "the key CBS challenge will be sustaining premium [ad rates]." The Citigroup analyst reiterated his "hold" rating on CBS shares. "Merger and acquisition risk and sluggish ad growth continue to keep us on the sidelines," he wrote.
Around midday Thursday, CBS (CBS, Fortune 500) shares had fallen 2.9% to $24.09, while CNET shares had risen more than 43% to $11.39. The acquisition is expected to close sometime this summer.
(Fortune) -- With its bold $1.8 billion purchase of CNET, CBS is making a play for ad dollars that are shifting to the Internet. But the company may be paying too much for a network of Web sites that won't address the conglomerate's main problem: an over-reliance on advertising dollars as a source of revenue.CBS Corp. President and CEO Leslie Moonves announced Wednesday morning that the company will make a cash tender offer to purchase CNET Networks Inc. for $11.50 per share, or about $1.8 billion. CBS will add CNET to its collection of media holdings: a TV broadcast network, 29 local television stations, outdoor advertising displays, 140 radio stations, cable channels such as Showtime, and Simon & Schuster publishing.
CBS management touted various "synergies" that the acquisition will unlock, but on the conference call with investors Thursday, executives offered few specifics. In a release, Moonves pointed out that the CNET deal would give the company exposure to the "fastest-growing advertising sector" - Internet advertising.
The acquisition takes place against a backdrop of slower ad spending. Overall advertising outlays grew at their slowest pace in five years during the last quarter of 2007, and that pace is expected to continue, according to Bernstein Research. Internet advertising grew 27% during all of 2007 to $25.5 billion, according to research firm, International Data Corp. Even so, that $25.5 billion represents only 7% of all U.S. advertising.
CBS's online empire will be vast. CNET is the 10th most visited Internet site in terms of global unique users and ranks 17th in unique U.S. users. CBS will add CNET's Web sites such as BNET (a business news and information site), GameSpot, News.com, TV.com and MP3.com to its own online operations CBS.com, CBSNews.com, and CBSSports.com. "By acquiring CNET, CBS will more than double Internet revenue and [ad] inventory space," said Frederick Moran, an analyst with the Stanford Group. "CNET also brings a dedicated online sales force and online advertising technology to CBS."
However, the CNET acquisition doesn't address CBS's oft-discussed Achilles Heel. CBS is more vulnerable to an advertising downturn than any of its peers in the industry: 72% of the company's revenue last year was derived from ad dollars, compared to 44% for News Corp., 35% for Viacom, 23% for Disney and 19% for Time-Warner. Although online advertising is expected to grow this year by 20%, companies who derive greater portions of their income from subscriptions generally fare better in a slowing economy.
Some observers are concerned that CBS, which offered a 45% premium to CNET's Wednesday closing price of $7.95 per share, is paying too much for its new Internet baby. Doug Creutz, an analyst with Cowen and Company, put it delicately Thursday morning in a communication with clients, when he called the acquisition "value-dilutive".
Creutz doesn't believe that the synergies CBS has outlined thus far merit the high acquisition price the company will pay. "One of our concerns about CBS has been that management might pursue expensive acquisitions to offset concerns about secular trends in the company's core broadcast television and radio businesses," Creutz said. "The CNET deal underlines this concern." Creutz reaffirmed his "underperform" rating on CBS shares.
Citigroup analyst Jason Bazinet is equally nonplussed. He noted in a message sent to investors Thursday morning that CBS is clearly trying to build a formidable presence on the Web with the addition of an online content company that commands ad rates "well above rivals". However, Bazinet observed, "the key CBS challenge will be sustaining premium [ad rates]." The Citigroup analyst reiterated his "hold" rating on CBS shares. "Merger and acquisition risk and sluggish ad growth continue to keep us on the sidelines," he wrote.
Around midday Thursday, CBS (CBS, Fortune 500) shares had fallen 2.9% to $24.09, while CNET shares had risen more than 43% to $11.39. The acquisition is expected to close sometime this summer.
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