Before the bell: Futures higher as investors await data

CBS Corp. (NYSE: CBS) announced Thursday it has signed a deal to buy CNet Networks Inc. (NASDAQ: CNET) for $11.50 a share in cash. CNet operates not only the CNET site, but also ZDNet, GameSpot.com, TV.com, mp3.com and others. The deal values CNet at about $1.8 billion and push CBS to among the 10 most popular Internet companies in the United States. CBS shares are down 2.9% in premarket trading while CNET shares are of course up over 42% to $11.31.

IAC/InterActiveCorp (NASDAQ: IACI)'s Ask.com has bought Lexico Publishing Group LLC, the parent of Dictionary.com, Thesaurus.com and Reference.com among other sites. Earlier this year, Lexico already agreed to be sold to Answers Corp (NASDAQ: ANSW), but the latter couldn't secure the necessary funds. Now, Lexico sold itself to Ask.com, for an undisclosed amount, although the number people are throwing around is $100 million. Could this acquisition help IACI gain -- even a little -- on market leader Google?

United Airlines (NASDAQ: UAUA) and Continental Airlines Inc. (NYSE: CAL), dropping ideas of a merger, are now talking about forming an alliance to still gain some benefits of working together. United appears relentless in its attempts to help its bottom line through a merger or an alliance. While talking to Continental about an alliance, it is still negotiating with US Airways Group (NYSE: LCC).

Answers Corp. (NASDAQ: ANSW) stock got smashed on Friday, dropping more than 23%. The company that via Answers.com provides users with answer-based search services and also operates Wikianswers.com, which is a Q&A platform where users ask various questions and a community of people answers them, is having all kinds of problems trying to finance an acquisition of Lexico, owner of the Web properties Dictionary.com, Thesaurus.com, and Reference.com.

Answers planned to buy the company for $100 million, even though Answers had just $9.2 million in cash at the time of the announcement. Skeptics, like my IOI partner, Zack Miller, just looked at the numbers and wondered how this deal was going to be financed, and it appears that they were correct to be skeptical. Since the announcement back in July, Answers stock is down over 65%.

In a note on Friday, paidContent.org referring to the deal financing said, "a plan to sell 14.94 million shares, raising $100 million. But that was based on the company's Tuesday closing price of $6.69. Since then the stock has been crushed, falling nearly 42 percent to $3.96. At this level, 14.94 million shares would only be worth $58 million, not nearly what it needs to raise to fund the buy. At these prices, the company would have to up the offering to 25.6 million, further diluting the value held by the company's current shareholders."

It looks like if this deal gets done, and I have my doubts that it will, investors are going to see lots more red, as the stock looks like it will be heading much lower.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. Disclosure: Writer has no position long or short in any stock mentioned as of 1/20/08.

I just read an interesting report from the Pew Internet & American Life Project. Part of the report stated the obvious: Americans are turning to the web more and more to get answers to all of life's problems. After polling more than 2,790 adults, ages 18 and older, the report found that 58% of Americans that have dealt with issues surrounding things like health, taxes, school, etc. used the Internet to seek help. Pretty expected.

What I thought was actually pretty interesting was a description of Gen Y, those young Americans aged 18-30, and their habits.

It turns out that "Generation Y was most likely to use libraries to get problem-solving information and for general purposes. In their lives, libraries are not losing value. In fact, 40% of Generation Y respondents said they would use libraries in the future to seek information, compared with 20% of those age 30 and older."

As Middle East leaders prepare to convene together, again, I was looking for some ways to play this event in my portfolio via Israeli Ingenuity, something we discuss a lot at IsraelNewsletter.com. This time around, the location is Annapolis, Maryland, site of the U.S. Naval Academy. Tuesday's conference aims to relaunch Israeli-Palestinian peace talks for the first time in seven years. Looks like almost everyone is going to attend. Even Lebanon looks ready to join the U.S., Israel, the Palestinians, and Syria in making history.

I'd be a buyer here of Elbit Systems (NASDAQ: ESLT), an Israeli defense contractor working on some large deals and really cool technology. BloggingStocks' Aaron Katsman wrote this past week about the anti-hijacking technology Elbit is marketing and this will certainly come in handy in Annapolis while each attending party will be working diligently to secure its best interest at the expense of all the others'. We've been here before and most of us do not so readily imbibe the peace kool-aid as in years past.

The second company I'd be buying here is Answers.com (NASDAQ: ANSW). Answers.com is an Israeli internet firm that runs an answer-based information portal providing users with answers covering millions of topics. I hope the participants in Annapolis are using Answers.com to find a path to peace because from where I'm sitting, it doesn't look particularly promising.

Answers.com, which gets a lot of its traffic from search monolith, Google (NASDAQ: GOOG), is in the process of acquiring the parent company of Dictionary.com, in a bid to secure more organic search traffic to its site. Dictionary.com may come in handy for Annapolis participants to find the definition of "disappointment" when this is all over.

Zack Miller is the lead equity analyst for America Israel Investment Associates, LLC., the managing editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund. Author's fund holds a position in ESLT but not in ANSW.

Answers Corporation (NASDAQ: ANSW), parent of Answers.com, a Web 2.0 amalgamation of useful research info, announced yesterday that its newish service, WikiAnswers surpassed one million questions posted on its site. I don't know whether one million is a lot, but it's right up there with what my five children ask me in just a single day.

The service allows content to be generated completely by users. The Holy Grail of Web 2.0, User Generated Content (UGC), this type of service allows users to both post questions and answer others' questions in a wide variety of domains. Growth has been impressive. According to the company, for the first nine months of this year, WikiAnswers' unique monthly visitor count in the U.S. has grown 317%, to more than four million. This ranks WikiAnswers as the second-fastest growing domain of the top 1,500. Not too shabby.

Google (NASDAQ: GOOG) pulled a competing service last year after boring results. Yahoo! (NASDAQ: YHOO), on the other hand, with Yahoo! Answers, has proven the model that users enjoy using this type of service. Yahoo has seen tremendous growth and according to TechCrunch, "one of Yahoo's most successful product launches in recent years has been Yahoo! Answers, which is showing more than 50% year-over-year growth in pageviews, according to comScore. Yahoo! keeps pushing the crowd-sourcing property, which lets 95 million registered members around the world answer each others' questions."

MAJOR PAPERS:

• Barron's Online's "Weekday Trader" section said that Bankrate Inc (NASDAQ: RATE), Answers Corporation (NASDAQ: ANSW), WebMD Health Corp (NASDAQ: WBMD) and The Knot Inc (NASDAQ: KNOT) may be the next preferred takeover targets for Google Inc (NASDAQ: GOOG) and Microsoft Corporation (NASDAQ: MSFT).
• The Wall Street Journal reported that Brad Tierney is interested in Dow Jones and Company (NYSE: DJ), which in talks with News Corporation's (NYSE: NWS) Rupert Murdoch for a possible $5B sale.
• According to the Wall Street Journal, citing a person close to the deal, Deutsche Telekom (NYSE: DT) will acquire the Orange Netherlands unit of France Telecom for about EUR1.3B, and simultaneously sell Ya.com for EUR320M to them.
• The Financial Times reported that three separate research teams showed the embryonic stem cells can be created by reprogramming some of the genes in adult mice skin cells, without creating an embryo. The news will be well-received by opponents of embryonic stem cell research, but scientists said it is too early to tell if the technique can be used with human cells.

OTHER PAPERS:

• The Herald Sun reported that a new $237B Chinese state-owned investment fund may be interested in acquiring natural resources company BHP Billiton Limited (NYSE: BHP), according to Bell Potter research chief Peter Quinton.

Most internet users have heard of the major search engines: Google Inc. (NASDAQ:GOOG), Yahoo! Inc. (NASDAQ:YHOO), Microsoft Corporation's (NASDAQ:MSFT) Live search, Time Warner Inc.'s (NYSE:TWX) AOL, and even IAC/Interactive Corp. (NASDAQ:IACI). But, in 1998 another search property launched. At the time it was called GuruNet and was used on PCs to search text in Word and other documents and bring back relevant links.

That company is now Answers.com, or Answer Corporation (NASDAQ:ANSW). The company takes queries from users and brings back results from other web properties like online encyclopedias or dictionaries. If it cannot get data elsewhere, it defaults to Google.

Answer is an example of a tech company that begs the question of why it is in business. It has many larger competitors, and they do the job of search at least as well, if not better.

In Q4 2006, the company had revenue of $2.5 million. The previous year that number was $1.86 million. In the last quarter of 2006, the company lost $1 million compared to $1.3 million in 2005. The company has about $9 million in cash and investment securities. Answer said it would loss another $205,000 to $375,000 in the first quarter of 2007.

Answer has a market cap of $103 million, which is fairly hard to believe. That is 14x last year's revenue, for a company that loses money and cannot possibly have even 1% of the search market.

The company is a business without a home. It is hard to see how it can survive indefinitely, and management has not made much of an argument for its relevance.

Douglas A. McIntyre is a partner at 24/7 Wall St.