Note: The ruling from Delaware court is embedded below (RSS readers will have to click through).
A big win for the investor group trying to shake things up at CNET… a judge in Delaware Chancery Court has affirmed the right of Jana Partners to nominate directors to the company’s board. Some perspective: In January, Jana Partners, along with Sandell Asset Management, Paul Gardi of Alex Interactive Media, Spark Capital, and Velocity Interactive Group announced that they had acquired a sizable stake in CNET (NSDQ: CNET) and that they intended to put a slate on CNET’s board. Not only did CNET reject this proposal, but it claimed that Jana had no standing to nominate directors, given that it hadn’t held shares for a sufficient length of time. As we discussed early on, with respect to the legal issues, Jana believed that the share requirements were sufficiently vague, such that they could get past this issue, and it appears they have done so. Technically, Jana will propose to candidates to replace directors up for re-election, while also pushing forth a new by-law to establish five more board seats.
From Jana’s statement: “On January 7, 2008 CNET claimed that the efforts of a JANA affiliate to nominate two directors for election to the open board seats at CNET’s 2008 Annual Stockholders Meeting and to add five additional nominees to the board of directors were “improper” under its bylaws and sought to deny its right as a stockholder to do so, after which this affiliate of JANA filed suit in Delaware challenging the company’s interpretation of its bylaws. The Delaware Court of Chancery today rejected CNET’s arguments and affirmed JANA’s affiliate’s right to have its nominations and proposals considered by stockholders at CNET’s Annual Meeting.”
— Jana’s seven nominees include: Paul Gardi, Santo Politi (Spark); Jon Miller, (former AOL (NYSE: TWX) CEO and Velocity Interactive Group partner); Jaynie Studenmund (ex-COO, Overture), Julius Genachowski (Rock Creek Ventures), Brian Weinstein (Creative Artists Agency) and from Jana, Giorgio Caputo.
–In addition to the legal roadblock, CNET has also adopted a poison pill plan, threatening any aggressor with significant dilution.
Update: CNET is considering an appeal, according to the company’s official response to the court setback. It still believes that Jana’s actions are inconsistent with CNET’s established bylaws and that a proxy fight is not in the best interest of shareholders. It’s also warning the investor group of the tall task ahead of it, as it pursues its board slate: “If JANA Partners is ultimately permitted to submit its proposals for consideration at the Company’s annual meeting this summer, we would look forward to continuing to discuss the Company’s plans to focus on driving long-term growth and realizing the full potential of CNET Networks’ brands for the benefit of all stockholders. Notably, for JANA to secure the election of more than two directors, it would require a super majority vote of 66.67%. The CNET Networks’ board and management team will continue to act in the best interests of the Company and all stockholders.”