Evan Newmark has a very smart take on CBS’s acquisition of CNet. The main problem with CBS, he says, is that it’s a profitable but slow-growth company saddled with a public listing. Since no public company CEO is happy mapping out a future of slow yet profitable growth, Les Moonves feels forced to do silly things like pay 22x Ebitda for CNet when his own company is trading on a ratio of less than 8x.
Here is Les Moonves, “As you know, we’re always looking for strategic acquisitions in higher growth businesses.” And I thought, why? The business you’re in is pretty good at generating cash.
Newmark concludes:
The popularity of public companies going private over the last decade makes a lot of sense in this light. It can be viewed as the only way of saving a public company from its own growth-at-all-costs impulses.
But I’m not sure that CBS would make such a great private-equity target. As Newmark himself says, the private-equity playbook wouldn’t go down very well:
To continue to create shareholder value, you must have both of these constituencies come along with you. Do you cut costs and investments and pay out as much cash as you can? No, of course not. Employees, creative talent and advertisers would run from the company.
On the other hand, CBS would be a great acquisition for Berkshire Hathaway. Berkshire doesn’t necessarily look for growth in the businesses it buys: it looks for cashflow, which it can profitably reinvest elsewhere. And CBS has lots of profits which Berkshire would love to be able to invest. It’s like See’s Candies: acompany which throws of lots of cash and has perennial appeal to Middle America.
When Berkshire acquires a company, it generally leaves management alone to run that company. The one thing it doesn’t do is push management to make "strategic acquisitions in higher growth businesses". CBS is perfect for that kind of oversight. And with the shares only just coming off their all-time lows (admittedly, all-time isn’t very long, CBS was only spun off from Viacom in 2006), shareholders might welcome a face-saving exit.