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CNET/ZDNet Seen Scaling Back

While the proposed nuptuals between CNET and ZDNet is expected to occur next month as planned, the combined company may find ways to cut costs, according to one report.

A report issued Wednesday by Goldman Sachs finds that the combined CNET/ZDNet entity can realize "operating synergies" by focusing on advertising and headcount.

Indeed, in its proxy materials filed with the Securities and Exchange Commission late Wednesday, the company itself said that cost synergies "in areas such as selling, general and administrative expenses and advertising expenses, are expected to result from economies of scale."

Without going into much detail, Ziff-Davis and CNET said they expect to incur direct transaction costs of approximately $17.5 million in connection with the merger. The proxy materials will be mailed out to shareholders on Friday, Sept. 8.

CNET didn't returned repeated telephone calls for comment.

"By reducing the planned addition of approximately 450 employees over the course of the next 18 months by at least 25 percent, CNET could also eliminate approximately $5 million" in operating costs, according to the research report. Additionally, advertising budgets can be slashed by 10 percent as the two companies no longer compete against each other for online distribution deals.

Advertisers are loving the merger because of the reduction in costs, affirmed Charlene Li, an analyst at Forrester Research. "This is a great marriage of two extremely compatible companies. However, advertisers do not need to promote themselves on both sites," she said.

Hiring freelance employees may be another means of cutting costs and reducing head counts, noted Emily Meehan, an analyst at The Yankee Group.

"The cultures between CNET and ZDNet are very similar, so I do not foresee a problem in converging the two operations," Meehan noted. "However, whenever there is an Internet peer play, everyone looks to cut costs. In this case, using freelancers to work on the site's content may be an option. Hiring freelancers is a fabulous way to reduce costs and and benefits because there are no ongoing salary requirements."

The reports comes on the heels of an announcement in which CDNET announced it was one step closer to acquiring ZDNet and predicted the combined company will earn $580 million in 2001.

CNET is a direct competitor of internet.com, the parent of this website.