CNET's Shiny New $250 Million Credit Line: What Will They Use It For?

Update: See announcements here. CNET has sold Webshots for $45 million in cash as well as other announcements. They have not announced a stock buyback or any acquisitions, but its clear that they are preparing to make some moves with all this cash.

cnet.pngCNET Networks has $250 million burning a hole in its pocket. The Internet media company secured a line of credit for that amount on October 16, even though it already had $60 million in cash (this for a company with estimated annual revenues of $418 million). So what is it going to do with all that cash? We may find out later today during its third quarter earnings call, but a good bet is that a stock buyback is in the works.

CNET’s stock has gone nowhere the past few years. And its current market capitalization of $1.2 billion is close enough to its enterprise value of $1 billion to get private equity funds and hedge funds sniffing around. (It is also dangerously close to the total value of its assets which, according to Oppenheimer $ Co. analyst Sandeep Aggarwal, are worth $674 million after factoring in the new cash infusion). CNET is under the same takeover pressures as larger print media companies like Dow Jones (bought for $5 billion by News Corp.) and the Tribune Co. (bought for $8 billion by Sam Zell).

If a stock buyback manages to jack up the market cap, a takeover could be averted. With only 152 million shares outstanding, CNET could buy up 20 percent of its shares with that $250 million, assuming it could buy them all at today’s stock price of $8. (I offer this back-of-the-envelope calculation just as a reference point—obviously, a buyback would have a major impact on the price). Although, whether that is the best use of its cash, is another question entirely.

It’s also possible CNET secured the credit line in order to be able to make quick moves if acquisition opportunities pop up. We’re hearing a number of rumors around possible asset sales or spinoffs, too. More info later today.