Trend of Activists Targeting Media Continues

Jana Partners LLC and Sandell Asset Management Corp. are the latest activist investors to win a campaign against a media company as target Cnet Networks Inc. agreed to a $1.8 billion offer from CBS Corp. With the latest victory, insurgent shareholders will certainly ratchet up their efforts against other media companies.

In fact Cnet is just one of a growing number of news media companies under fire by activist investors. As CBS and Cnet announced their deal, the father of activist investing, Carl Icahn, officially launched his latest campaign against a media company, Yahoo! Inc. Icahn issued a 10-man proxy contest against the search engine giant that also has a major news aggregation business. The goal of his proxy: He wants Yahoo! to return to the table to complete a sale to Microsoft Corp.

Icahn is no stranger to the media industry. He and other insurgents spent roughly three years nudging Time Warner Inc. into spinning off its cable division, which the old-media-meets-new-media company announced last month. The CNN parent also completed a major stock buyback to help keep institutional investors at bay in 2007 when Icahn contemplated and later chose not to launch a proxy contest.

Icahn aside, other activists are almost as prodigious in their efforts against media companies -- most notably Harbinger Capital Partners, which won two efforts in 2008.

Harbinger's biggest win in 2008 was against the New York Times Co., where Harbinger and Firebrand Partners LLC, alleging a flawed digital strategy, sought to nominate a minority slate of director candidates to the board. They ultimately settled for two seats and cancelled their proxy contest.

Then last month, Harbinger won its efforts against Media General Inc., whose shareholders elected three directors from Harbinger's slate. The new directors include former broadcasting executive J. Daniel Sullivan, investment manager F. Jack Liebau Jr. and turnaround consultant Eugene I. Davis.

Under pressure from activist investors K Capital Management LLC of Boston, Sun-Times Media Group Inc. announced in February it was considering a sale of assets. K Capital, the company's largest shareholder, with a 9.7% stake, has been a vocal advocate for a sale.

Small capitalization activists are targeting media companies lately too. Spanish Broadcasting System Inc., a Coconut Grove, Fla.-based operator of 21 radio stations and two television stations, is the target of activist fund Discovery Equity Partners LP and a "just vote no" campaign it launched in April against the media company's board and CEO Raul Alarcon.

In some sense the activists were emboldened not only by Icahn's efforts against Time Warner, but by the successful efforts Private Capital Management launched against Knight Ridder Inc. in 2005. In less than a year, Private Capital, a 18.9% Knight Ridder stakeholder and another investor, Southeastern Asset Management Inc., had pressed the news giant into auctioning itself to Sacramento, Calif.-based newspaper publisher McClatchy Co. for $4.5 billion.

Some common activist arguments associated with their campaigns: The newspapers have had a difficult time of late with revenue growth as advertising dollars migrate away from traditional newspapers to the Internet and other media (thank you, Monster.com and Craigslist). Meanwhile with new media companies, the complaint is that they haven't captured the ad dollars quick enough. - Ron Orol