Just before midnight Friday, CNET (NSDQ: CNET) announced a Stockholder Rights Plan designed to, in its words, “encourage anyone seeking to acquire the Company to negotiate with the Board of Directors prior to attempting a takeover.” Basically, it’s a poison pill that would be triggered upon anyone acquiring 15 percent of the company. The release didn’t go into much depth but CNET has now filed the details with the SEC. The core method of action is the same as any other poison pill plan — share dilution.
Here’s their example: …at an exercise price of $35 per Right, each Right not owned by an Acquiring Person following an event set forth in the preceding paragraph would entitle its holder to purchase $70 worth of Common Shares (or other consideration, as noted above). Assuming a value of $17.50 per Common Share at such time, the holder of each valid Right would be entitled to purchase four Common Shares for $35.”
In other words, in the event that a party, the “Acquiring Person”, acquires 15 percent of the company’s stock, there would be a big sale on CNET’s stock, triggering a flood of new shares. The filing explains: “The Rights will not prevent a takeover of the Company. However, the Rights may cause substantial dilution to a person or group that acquires 15 percent or more of the outstanding Common Shares. “Of course, if the acquiring person makes a compelling offer to the board, there’s a provision that allows the board to terminate the rights plan.
All poison pill plans have a certain “cut off the nose to spite the face” quality about them, and this one is no exception. So far, the market doesn’t seem to mind as CNET is up over 1 percent in early trading. Now it’s up to Jana and its partners to respond. More fireworks to come.
Update: Predictably, Jana Partners is none too pleased with the latest move: “CNet’s adoption of an increasingly outdated and unpopular entrenchment mechanism in response to our efforts to create value continues a pattern of hiding behind legalities and mischaracterizing our efforts as a takeover attempt, and is further proof of the need for change.” (MarketWatch)