Cnet Investor Jana Partners Proposes Board Members (Update6)

Jan. 7 (Bloomberg) -- Cnet Networks Inc., the online publisher of technology news and reviews, rejected a proposal from investors including Jana Partners LLC to change control of the board after its shares trailed industry stock indexes.

Jana disclosed an 8.1 percent stake in Cnet today and sued in Delaware Chancery Court for permission to nominate new directors including Paul Gardi, a former Ask Jeeves Inc. executive. Cnet contends that Jana, the New York-based hedge fund, doesn't have the standing to nominate directors.

Cnet, led by Chief Executive Officer Neil Ashe, is defending itself against criticism that it hasn't capitalized on the quality of its content and staff and has paid too much for acquisitions. The San Francisco-based company had three straight quarterly losses and its shares rose less than 1 percent in 2007, trailing the 9.8 percent gain in the Nasdaq Composite Index.

``With better board oversight, the right team could do great things with this brand,'' Gardi said in an e-mail. ``We see huge opportunity in the strength of Cnet's content.'' Jana's slate of seven directors can push the company to increase readership, sell more ads, and make better acquisitions, it said in a statement.

Option to Double Stake

Jana holds swap agreements with Jefferies & Co., Lehman Brothers Holdings Inc. and UBS AG that give it an economic interest in another 8.2 percent of shares, it said in a regulatory filing. Jana is working with Sandell Asset Management Corp., which has an economic interest in another 5 percent.

``We value our stockholders and welcome suggestions from all of them,'' Ashe said in an e-mail to employees that was published in a regulatory filing today. ``We carefully reviewed Jana's submission and determined, however, that it is improper.''

The Jana proposal amounts to an attempt to win majority control of the board without buying a majority stake, Cnet said in a statement, adding that the nomination isn't possible under company bylaws. Jana counters in its lawsuit that the bylaws, which say stockholders must own $1,000 worth of shares for a year before they can nominate directors, conflict with Delaware law.

Cnet dropped 12 cents to $8.44 at 4 p.m. in Nasdaq Stock Market composite trading after rising as high as $9.10 earlier. It held its last annual shareholder meeting in June and hasn't scheduled its 2008 meeting yet.

Gardi joined Ask Jeeves in 2001 when it acquired his Teoma Technologies Inc. and served as an executive vice president for operations and strategic planning at the company before it was sold to IAC/InterActiveCorp in 2005. The shares rose more than 30 times in that period. He's now a managing member of Alex Interactive Media, a New York-based investment company.

$20 Million Investment

The Jana group wants him and Santo Politi, founder of venture capital fund Spark Capital and a former president of new media for Blockbuster Entertainment Inc., to replace two current Cnet board members. Spark has agreed to invest $20 million in Cnet, Jana said.

The investors also propose expanding the board to 13 members from eight with the addition of Jonathan F. Miller, former CEO of Time Warner Inc's AOL unit, along with Jaynie Studenmund, Julius Genachowski, Brian Weinstein and Giorgio Caputo.

Cnet sold photo-sharing site Webshots.com to American Greetings Corp. in October for $45 million to focus on units such as technology and business media. It bought FindArticles.com from LookSmart Ltd. for $20.5 million in November.

To contact the reporters on this story: Meg Tirrell in New York at mtirrell@bloomberg.net; Zachary R. Mider in New York at zmider1@bloomberg.net.

To contact the editor responsible for this story: Colleen McElroy in New York at cmcelroy@bloomberg.net.