In his popular "The Financial Page" column for The New Yorker, James
Surowiecki writes in the June 9 edition that CBS's $1.9-billion purchase of the
online company CNET is unlikely to make money for the broadcasting company.
Surowiecki writes that the deal's rationale rests on "the myth of synergy" but
that in practice few companies have been "able to take acquired firms and
improve their performance and profitabiliity." Moreover, paying a 40-percent
premium for the publicly traded company puts the onus on CBS to increase CNET's
value substantially. "If CBS and CNET had simply agreed to cross-promote each
other's brands and distribute each other's content, CBS would have had many of
the benefits of merging without the costs." Surowiecki also suggests that CBS
may have bought CNET simply to show shareholders that it is growing and
revitalizing itself. But, he concludes, "Deals like the CNET acquisition are a
bit like an aging outfielder taking steroids in order to stave off the
boobirds. The difference is that steroids usually work."
06/06/2008
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