Recently, CBS (PARA) paid nearly $2 billion to purchase CNET, a San Francisco-based company that owns a diverse network of Web sites.
Was the purchase by CBS a smart idea?
Um, probably not.
That’s the conclusion of James Surowiecki of the New Yorker, who writes about the merger in the current issue of the magazine.
Mr. Surowiecki points out that many studies have found that "corporate marriages only rarely end in bliss," and that the "logic" of the CBS-CNET deal "depends on the myth of synergy."
"Merger mania also rests on what you might call the fallacy of ownership—the assumption that you have to own a company to make money from its properties," writes Mr. Surowiecki. "In fact, much of what mergers are supposed to accomplish can be achieved through partnerships and alliances… 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."
More from the piece:
Unfortunately, the CBS-CNET merger fits none of the criteria for a good deal. The overlap between the two companies is limited, and so are the opportunities for cost-cutting. And, because CNET is neither small nor privately owned, CBS paid a forty-five-per-cent premium on CNET’s stock-market price. That means that, for the deal to work, it will need to improve CNET’s performance not by a little but by a lot. Rationally speaking, then, it’s unlikely that this deal will end up making CBS money.
