Terms of the deal call for the New York-based media giant to pay $11.50 per share, a premium of nearly 45% to San Francisco-based Cnet’s Wednesday close of $7.95, according to a statement.

“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,” CBS president and chief executive Leslie Moonves said in the statement.

Read about the interview with Leslie Moonves about the acquisition.

The acquisition will make CBS one of the 10 most popular Internet companies in the United States, with a combined 54 million unique users per month, and about 200 million users worldwide, the companies said.

The deal is expected to close in the third quarter. CNET’s board has unanimously approved the deal, the company said.

Based in San Francisco, CNET Networks-owned sites include CNET, ZDNet, GameSpot, TV.com, MP3.com, CNET News.com, UrbanBaby, CHOW, Search.com, BNET, MySimon, and TechRepublic.

CNET Networks, News.com’s publisher, recently announced a partnership with Yahoo to provide technology news and reviews to the search company. The companies also agreed to allow Yahoo to sell display ads on CNET properties and for CNET to sell ads alongside the content it provides on Yahoo sites.

CNET has been involved in a fight over control of its board with Jana Partners.

CNET Mini SWOT

CNET Strengths:

Brand awareness and brand respect.   CNET has been one of technologies most recognizable and respected brands for many years, and continues to maintain the high respect of the technology community.

Writers.  CNETs technology writing and analysis is recognized as some of the best in technology.  Unbiased reviews and authoritative articles from seasoned technology journalists are the mainstay of CNETs content.

Editorial staff.  CNETs reputation for editorial and quality control is unsurpassed in the industry.

Dan Farber promotion.  Dan Farber is one of technologies most informed and seasoned professionals.   As a blogger who is extensively familiar with and actively participating in social media Dan was a great choice to help guide CNET into a more aggressive social networking posture.

Huge internet traffic.  CNET remains one of the most visited news sites on the internet.

High revenues with potential for high profitability.   CNET’s revenues are strong despite significant earnings declines in the past year. Zacks analysis suggests a modest profit downturn in the coming year, but CNET is still generating very substantial revenues and some profits.   Under a JANA acquisition scenario the aggressive management for profit could boost earnings significantly.

CNET Weaknesses:

Labor intensive content production.  CNET’s quality writers and editors are her blessing and her curse.   Writers cost money and good writers, collectively, cost a lot of money.    Blogging and the social media revolution have led to an online environment that creates a tidal wave of quality tech-focused content every day at very low average cost per article.

News delays.   Although CNET remains very current, it simply cannot always compete with the 24/7/365 blogging community that is posting (and increasingly scooping) CNET and other media outlets when technology news breaks.  Again, the editorial standards force CNET to delay where bloggers and online journals will report first and ask questions later.  The practice is questionable from a journalism point of view, but usually it is just fine for advertisers and certainly helps with traffic generation as the early reports often garner the most page views.

Earnings declines.   CNETs earnings are down significantly, placing huge pressure on the company to cut costs and increase monetization for content.    CNETs early success may have led them to incorrectly assume they would remain unchallenged in the tech news space where they are under pressure from both bigger players like Yahoo and smaller players like TechCrunch.

CNET Opportunities:

Socialism!   CNET’s attempts to build an online CNET-centric community at the website have been modest and in many ways have failed.    With a sterling brand and reputation, CNET is in a great position to leverage the existing tech-centric user base into a number of community endeavors.   One small example would be to create more niche CNET communities online and then evangelize these communities via CNETs advertising as well as Facebook, Myspace, and other social media powerhouses.   Even more powerful would be to facilitate the creation of much more reader-driven content.   For example make registration for CNET simpler with just an email signup and encourage far more guest articles.   Digg style rankings for CNET articles would be another positive step in this direction.

Be more like TechCrunch.  Mike Arrington has brilliantly leveraged the fast pace of internet journalism, modest journalism standards, advertisement flexibility, and most importantly the powers of social media.   Where TechCrunch initially produced content at a fraction of the cost of CNET using freelance writing and little office overhead, it also distributed and monetized this content in more powerful ways such as massive emailings and very aggressive social media participation and real socializing.   Once again however CNETs high journalistic standards provide some barriers here.

JANA board coup:  If JANA succeeds in the fight to change the direction of CNET, and this appears likely, a new focus on monetization and innovation will lead to a stronger and more viable CNET.     Unfortunately profitability is probably going to call for a reduction in journalistic standards and quality coverage, but from a company health perspective CNET is likely to benefit from a leaner, faster, broader, but more superficial approach to tech news coverage.

CNET Threats:

Diminished advertising revenues.   The coming recession may not hit online advertising as hard as some other sectors but online advertising spending growth is likely to slow in the coming year and possibly even go down.   Financial sectors, for example, were huge spenders last year and may be unable to continue spending at the same levels due to the housing crisis.

Blogging and the social media revolution.   These represent a substantial threat to CNETs long term prospects and profitability.   Blogs and non-traditional media coverage are generating huge volumes of quality content every day, and technology focused content is especially abundant since blogging’s early adopters tended to be technology enthusiasts.  Bloggers are increasingly respected as quality journalists and analysts who in some cases have more expertise than the technology journalists that are covering the same story, product, or events.   Yet the average cost to produce a blogged story is effectively zero as many bloggers are writing simply for the fun of coverage and the internet soapbox.   Monetization of blogs is also becoming easier and more lucrative in the form of Google Adsense per click advertising as well as projects like Federated Media which match publishers to advertisers - a service for which advertisers are increasingly willing to pay a high premium.

Source: Joe Duck

Most Wall Street analysts believe Microsoft now faces a drawn-out proxy campaign to win its unsolicited takeover of Yahoo!, according to the poll.

By contrast, the general view in February when Microsoft announced its offer was that Yahoo! would agree to a friendly merger if Microsoft only sweetened its bid. By mid-March a Reuters poll showed that Wall Street expected Microsoft to buy Yahoo! without raising its price.

Microsoft last week repeated chief executive Steve Ballmer’s three-week-old threat that his company will go hostile, or even call off its bid, if Yahoo! did not agree to a deal before this weekend. Microsoft executives said they will reveal their next move this week.

“I’m betting that Ballmer is bluffing with his ‘walk away’ comments and that he’s going hostile,” said Jefferies & Co analyst Youssef Squali, who believes Microsoft will stick with its current $31-per-share offer.

Nineteen brokerages now say they expect Microsoft in coming days to move forward with a hostile bid after being frustrated in a three-month effort to entice Yahoo! to reach a negotiated deal, the survey reveals.

Due to a drop in Microsoft stock, it is now worth $42.7 billion.

Another three Wall Street houses see Microsoft walking away rather than raising its offer. Many Microsoft shareholders fear a higher-priced deal would dilute the value of their shares and have an uncertain payback. Were Microsoft to walk away, Garrity estimates Yahoo!’s stock could drop around 14 per cent to $23 a share, while Microsoft’s stock might jump about 17 per cent to $35 a share.

Fourteen brokerages say they expect Microsoft to begin a campaign to unseat Yahoo!’s board and encourage the company’s shareholders to accept its current $31 bid. Another five brokerages expect Microsoft going hostile at a lower price.

To counter Microsoft, Yahoo! has held talks with Time Warner Inc on a deal to merge Yahoo! with Time Warner’s AOL unit in return for Time Warner taking a stake in Yahoo!, several sources familiar with the negotiations said earlier this month.

A Yahoo!-AOL tie-up would be part of a three-way deal in which Yahoo! may partner with rival Google Inc. to use Google’s advertising system to sell ads alongside Web search results Yahoo! serves up to its users, these sources said.

Yahoo! executives told investors on a quarterly conference call last week it was “premature” to discuss whether a trial run of the Google ad partnership will lead to a deal between the two companies, but declined to comment on progress Yahoo! is making on a deal with AOL or other alternatives to Microsoft.

AOL’s Internet media and advertising assets represent the closest thing to Yahoo! and would significantly enhance Microsoft’s Web audience, he said. Microsoft has reportedly talked with News Corp, owners of the MySpace social network, about a joint bid for Yahoo!, but Moran believes MySpace is less promising than Facebook, albeit one that is unlikely to sell at a price Microsoft would be ready to pay.

The Reuters poll drew responses from 17 Microsoft analysts and 15 Yahoo! analysts from 25 different Wall Street brokerages. It was conducted on Friday, a day before Microsoft’s three-week-old deadline expired for Yahoo! to reach a deal.

What will happen if Microsoft adopts a full hostile takeover strategy. There is a superb analysis done at pmrca.

The possible scenarios from here, in roughly decreasing order of probability, include:

• Hostile Takeover: Microsoft moves forward with a full-fledged hostile takeover — trying to replace Yahoo’s board and/or taking its offer directly to Yahoo’s shareholders.
• Higher Offer: Microsoft raises its offer or otherwise modifies its offer terms to make them more attractive — for example, Microsoft could shift to an all-cash offer — in an attempt to make the deal happen without going fully hostile.
• Walk Away: Microsoft drops its offer and walks away; Yahoo’s stock drops to its pre-offer level of $19.18, give or take. Lots of moves and countermoves could follow: Microsoft could come back later with a lower or higher offer; Yahoo could cut a Google advertising deal to boost its revenue and margins and make itself harder to buy; Microsoft could take its $44 billion and go buy virtually every new Internet company of any consequence founded in the last 10 years; etc.
• Yahoo Caves: Yahoo’s board caves and accepts the current Microsoft offer.
• White Knight: Another bidder enters and offers Yahoo a higher price.

Let’s assume the Hostile Takeover scenario, which seems to me to be the most likely given Microsoft’s strategy and explicit public statements. What happens then?

There are two primary hostile takeover tactics:

• A tender offer, which we can equivalently call an exchange offer since the offer includes Microsoft stock that would be exchanged for Yahoo stock. This would be an offer by Microsoft to acquire Yahoo shares from existing Yahoo shareholders directly. Note that this hasn’t happened yet; Microsoft’s offer up until now has been made to Yahoo the company — in a tender offer, the offer would be made directly to Yahoo’s shareholders.
• A proxy fight by Microsoft to take control of Yahoo’s board of directors — to put in place a new Yahoo board that would accept Microsoft’s current offer.

These two tactics could be used alone or in tandem.

In the case of a tender offer: if shareholders owning more than 50% of Yahoo’s shares agree to the offer, Microsoft gains control of Yahoo directly.

(Actually, Microsoft probably wouldn’t need to own a full 50% of Yahoo’s shares — it could own, say, 40% and then have effective control, because only one-sixth of Yahoo’s remaining shareholders would have to vote with Microsoft on any issue in order for Microsoft to exercise control.)

Yahoo’s best defense against a tender offer is its poison pill. The poison pill works like this: if Microsoft acquires more than 15% of Yahoo without Yahoo board approval, the poison pill kicks in and issues a flood of new Yahoo stock into the market in such a way that Yahoo becomes much more difficult and expensive to buy. Poison pills have been used as defensive mechanisms by public companies against hostile takeovers for years, and the dilution they cause is so huge that no poison pill of this type has ever been triggered.

Rather than trigger the poison pill, Microsoft would most likely condition its tender offer on Yahoo’s board cancelling its poison pill. If the Yahoo board refused to cancel the poison pill, Microsoft could sue in a Delaware court to force a cancellation of the pill. (Any and all litigation to force Yahoo to come to terms will be in Delaware, since that is where Yahoo is incorporated.)

Delaware courts give some deference to target boards in resisting hostile takeovers, especially in the early stages of a takeover fight, but in many cases the courts have been unwilling to allow targets to “just say no” in the face of a well-financed offer at a significant premium — which is the situation Yahoo is facing. It’s impossible to predict what a court will do, but Delaware courts are more likely to force a poison pill to be cancelled when a target board has had plenty of time to drum up alternatives to the hostile offer, and where the hostile offer is well-financed and represents a significant premium to the company. This gets even more likely if the bidder has raised its price during the process, which hasn’t happened here — yet.

In the case of a proxy fight, which Microsoft has overtly threatened: Microsoft would nominate an alternate slate of directors for election to the Yahoo board in place of the current directors. If Yahoo shareholders favor the Microsoft bid, they can vote for Microsoft’s alternate directors, who — if elected to Yahoo’s board — would approve the Microsoft bid.

A proxy fight may have special appeal for Microsoft for a couple of reasons.

First, it could work in one fell swoop.

Many public companies have a “staggered” board, where some directors are up for election or reelection each year, but the entire board is never up for reelection in a single year.

Yahoo, however, has its entire board standing for reelection each year.

In retrospect, this was not a good idea — whoever set this up at Yahoo made a serious mistake. In a proxy fight with a staggered board, target management can lose a proxy fight and still control two-thirds of the board. In Yahoo’s case, if Microsoft wins one proxy fight, it takes out the entire Yahoo board.

It would be practically impossible for Yahoo to change to a staggered board now — in fact, trying to do so would immediately give Microsoft its opportunity to nominate its slate of directors.

Second, Yahoo can’t block a proxy fight via a poison pill or any other mechanism. They can delay it — a bit — but they cannot block it.

Microsoft gets control of Yahoo if it puts up a slate of directors for election and they win at Yahoo’s 2008 annual meeting. All that is needed for Microsoft’s slate to win is to get more votes at the meeting than Yahoo’s incumbent directors. Since not all Yahoo shareholders will bother to vote, Microsoft doesn’t need a majority of all shares to win — it just needs more votes.

As it turns out, Microsoft has leaked to the press the fact that it has already assembled a slate of directors who have agreed to run against Yahoo’s board in the event Microsoft moves forward with a proxy fight. The Microsoft slate includes several former CEO’s, COO’s, and CFO’s — individuals certainly qualified to sit on a corporate board.

If Microsoft wins the proxy fight, then its acquisition of Yahoo is probably a foregone conclusion. Microsoft’s slate of directors would be expected to vote to cancel the Yahoo poison pill, allowing Microsoft to make its tender offer for Yahoo’s shares. However, the new Microsoft-installed board would still have to exercise its fiduciary duties and carefully assess whether the Microsoft offer is in the best interests of Yahoo shareholders — if the new board acted rashly to rubber-stamp the Microsoft takeover, it could theoretically be sued by pro-Yahoo shareholders, although that lawsuit would be an uphill battle. Further, Yahoo’s poison pill would throw some procedural hurdles Microsoft’s way: the pill says that for a 180-day period following a successful hostile proxy fight, the new board can only cancel the pill if it follows certain procedures, including getting an independent financial advisor to opine that cancelling the pill is in the shareholder’s best interests. All this would do is slow down Microsoft’s takeover — it would still happen.

Yahoo has taken other steps to respond to Microsoft’s unwanted advances.

In February, Yahoo adopted a takeover-related compensation plan covering every full-time employee. The plan would issue large cash payments and 100% accelerated stock option vesting to Yahoo employees who are terminated “without cause” or who quit “for good reason” in the two years following a takeover. The devil is in the details — if the definitions of “cause” and “good reason” are broad enough, the plan could give Yahoo’s entire employee base easy access to 100% option acceleration and large severance cash payments after a takeover. The plan has the effect of making a takeover of Yahoo more expensive — and Microsoft has responded by saying it might lower its offer price as a result.

Yahoo has also bought time by amending its bylaws to delay the deadline for making board nominations for this year’s board election, and could buy additional time by delaying the date of its 2008 annual shareholder meeting.

Previously, Yahoo board nominations had to be made by March 14. While searching for an alternate bidder, Yahoo did not want to face a proxy fight starting in March, so it amended its bylaws to require board nominations to be made within a 10 day window after Yahoo announces the date for its 2008 annual shareholder meeting.

Yahoo has not yet announced the date for its 2008 annual meeting. However, under Delaware law, Yahoo has to have its annual meeting by July 12 — the 13-month anniversary of its last annual meeting — or Microsoft can sue to force a prompt annual meeting. Microsoft would almost certainly win that lawsuit, and the court would probably force a meeting within 60 to 90 days. So Yahoo can at least delay its annual meeting and therefore the board election process until July, and perhaps as late as October if it is willing to force Microsoft to sue to schedule a meeting.

So this may yet come to remind you of the Democratic presidential primary season — it may last a while.

You should read the full story at pmrca.

This is also being discussed here: Microsoft Watch, Financial Times, Between the Lines, Scobleizer, TechCrunch, Tech Check with Jim Goldman, TECH.BLORGE.com, Tech Trader Daily, GMSV, Hacking Cough, Valleywag, mathewingram.com/work, rexblog.com, Marc’s Voice, franticindustries, Search Engine Land, Tech Ticker, MediaFile, WebProNews, Digital Daily, WebProBlog, Mashable!