Issues & Opinions

…of deals that are both interesting and impenetrable, if not to all outsiders, then at least to me.

This just in, at 10:52 AM Central time:

Dow Jones shares soar on News Corp. bid

By David B. Wilkerson
Last Update: 11:52 AM ET May 1, 2007

CHICAGO (MarketWatch) - Shares of Wall Street Journal publisher Dow Jones & Co. climbed 58% before being halted Tuesday after Rupert Murdoch’s News Corp. made a $60 per share stock-and-cash bid for the newspaper publisher. Dow Jones, which also owns MarketWatch, the publisher of this report, was up $20.95 at $57.28 when shares were halted. News Corp. shares are down 3.3% at $21.62. Dow Jones said in a statement that its board of directors and the trustees of the Bancroft family, who hold shares representing a majority of the company’s voting power, are evaluating the proposal.

See also, if you like, the WSJ’s own story on the matter, including this interesting bit of easily-predicted intrigue

The offer could set off a bidding war for Dow Jones, owner of one of the most storied franchises in American newspapers. Possible rival suitors include the Washington Post Co., the New York Times Co. and possibly even Bloomberg LP.

No, I’m not surprised that Dow Jones’ stock price is up. I’m not surprised that News Corp’s stock price is down. And I’m not surprised to hear there’s a chance of a feeding frenzy of bidders in play. Both of the first two make complete sense under the circumstances. The third makes sense primarily because added drama, real or manufactured, sells papers. It’s the circumstances that don’t make sense.

I’d echo the commentary at Long or Short Capital, from “LoS reader Charlie“:

As a college student ten years ago, I fell in love with the Wall Street Journal (NYSE: DJ). A black-and-white broadsheet sans frivolity, it was the keeper of reporting and editorial standards that put all others to shame.

Alas, times have changed.

Yes, they’ve changed, for Dow Jones and for the entire newspaper industry.

The Wall Street Journal was the first traditional newspaper to establish a profitable presence on the internet, and remains exemplary in its provision of subscription-based electronic news delivery. The printed version of the paper, notwithstanding Charlie’s additional comments on the matter at the link above, is also still quite well produced, and is still the only daily printed paper I read on a regular basis. While I’m surely not alone in that sentiment, and the Journal has many regular readers, the underlying business can reasonably be inferred to be “in decline”, if the stock price is a useful metric (note - trading halted as of this writing, so the current price is omitted on the graphs below):

The steady decline since 2000 is unmistakable, and, with the possible exception of News Corp itself, seems tied to the industry as much as it is to Dow Jones specifically:

So, at least among the potential buyers, News Corp might make most sense, based on using its stock price trajectory as a proxy for how well it’s running its businesses. But I find myself befuddled at the prospect, other than as a knock-out bid, that a 67% premium to yesterday’s price can be justified for Dow Jones.

It’s a storied name in American journalism, and rightly so, but aside from the competitive difficulties inherent in the newspaper business, its market price has suffered to some extent over the years from the strains of family control, if not ownership, of the Bancroft clan, just as the NY Times’ market price suffers from Sulzberger family control. (An interesting discourse on dual-class share structures as a means to retain family control of public companies, entitled “Our company right or wrong“, dated Mar 15th 2007, can be found at The Economist).

So does the prospect of altering the Bancroft family control discount, and transferring ownership to a different form of family control via the Murdochs, justify such a noteworthy premium? One would have to presume that, at a minimum, the Murdochs think so. One could also presume that the Murdochs have additional plans in store, and News Corp shareholders would likely insist upon it. Just because I can’t identify an opportunity for value enhancement that justifies the price premium offered doesn’t make such a thing impossible. But this one goes onto my ever-increasing list of head-scratchers for the time being, and should provide interesting news cycles as the dynamics, along with the Murdochs’ strategy on the matter, unfold. From the initial WSJ story on the matter:

More details are expected shortly.

Indeed.

Day’s Range: 36.04 - 82.66

Only marginally related, assuming it’s not a misprint at Yahoo Finance, what can be said about the poor sod who paid $82.66 for at least one share of Dow Jones stock today?

Addendum - Snippets from a transcript (May 1, 2007 11:21 p.m. ET) of a Neil Cavuto interview with Rupert Murdoch on Fox News Channel, from the WSJ:

Cavuto: Is this so generous others don’t bother to outbid you?

Murdoch: Well, I hope so. But we feel it’s worth this. This is the greatest newspaper in America, one of the greatest in the world. It has great journalists which deserve, I think, a much wider audience. We feel that with coming both online and offline, there’s a great deal to be done here. It’s got great journalists, it’s got great management, but it’s got a rather confined capital. It’s got to be part of a bigger organization to be taken further.

{…}

Cavuto: But there is still a lot of private-equity guys out there that have billions on hand. They could cause some trouble. Are you worried?

Murdoch: No. We are paying, offering a very, very high premium, which I don’t think they could reach. They need to leverage with a lot of interest-bearing notes, and this is already at about 50 times earnings.

Cavuto: Maybe your biggest worry, Mr. Murdoch, is your own shareholders, who are asking, ‘what’s he doing? What’s he doing?’

Murdoch: Oh, I think they have faith in me. They’ve been very loyal to me for a long time. Our company is now worth, has a market cap of over $70 billion, I think. So, we have had our ups and downs. Often when I have made big moves, the shares have gone down a bit, only to go up a lot more later on.

(ellipsis mine)

Addendum - To almost nobody’s surprise, the Bancrofts turned the offer down.

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