Rupert Murdoch Sends a Clear Shot Across the Dow
The family-owned Wall Street Journal gets a rich buyout offer
Rupert Murdoch may have hit a speed bump on the way to world media domination, but it is unlikely to prevent him from pushing Dow Jones & Co., owner of the Wall Street Journal, into new hands, and they well may be his. Although the Bancroft family, which controls more than 50 percent of the stock of Dow Jones, last week twice said it will not move on the unsolicited $5 billion offer from Murdoch's News Corp., analysts believe the bid could spark an auction for the 125-year-old newspaper publisher and ultimately bring about its sale. The most likely new owner: Murdoch.
"The Bancroft family has control, but there can be a limit to their ability to say no," says Lawrence Haverty, an associate portfolio manager at Gamco Investors, which owns Dow Jones stock. "Dow Jones is a minnow in the shark pool, besieged on all sides by competitors who have vastly more resources than it does."
Hefty premium. The Washington Post Co., Gannett, and Google, all of which have refused to comment on the offer, are among the companies that analysts have mentioned as possible suitors for Dow Jones. However, analysts are quick to point out that News Corp.'s bid, at $60 a share, or a premium of 65 percent over Dow Jones's stock price at the time the offer was made public, could be hard for some to beat. "News Corp.'s offer is at such a big premium that it could be difficult to come in on top of it," says Rick Edmonds, a newspaper industry analyst at the Poynter Institute in St. Petersburg, Fla.
Difficult for everyone but Google, perhaps, which is sitting on a mountain of cash and might want to make a bigger move into the financial information arena. The company launched Google Finance a year ago and has seen rising growth in viewers. "While it's not logical for Google, the same way it is logical for News Corp., you can't dismiss them either," says Edward Atorino, a media industry analyst with Benchmark Co. in New York.
The offer sent Dow Jones stock in-to orbit last week and boosted other media company shares. (The stock of Reuters, another major provider of financial information, soared when the company said it had been approached by an unidentified suitor.) The Murdoch move comes at a time when newspaper companies are struggling as advertisers direct more money to the Internet. Neither the recent sale of Knight Ridder nor that of Tribune Co. brought in the kind of premium Murdoch is offering. The bid by News Corp., which owns the Fox Network, MySpace.com, Twentieth Century Fox, and the New York Post, among many other properties, is higher than Dow Jones's stock price has been in nearly six years. And the Bancroft family's early rejections did little to stem the run-up (the stock closed Friday at about $56, up almost $20 for the week), indicating that investors believe the company will eventually be sold, analysts say.
Speaking on the Fox News Channel after the offer was announced, Murdoch, 76, said: "There is plenty of time. We will take it calmly and hope that they take it calmly and will think about it." Murdoch, whose fortune is estimated by Forbes at $9 billion, is known as a patient, charming, and persuasive executive who usually gets what he wants. And he has wanted Dow Jones for a long time. In addition to the Wall Street Journal, the nation's second-largest newspaper with a circulation of over 2 million, the company owns the WSJ.com website, Dow Jones Newswires, and Barron's.
The company currently generates 30 percent of its revenues online and has said it expects to increase that to 50 percent by 2009. So, while the Journal would be a trophy for the Australia-born media baron, much as is the Times of London, Dow Jones properties would also give him a big boost on the Web and television. "Murdoch is a big believer that the future is in digital, and Dow Jones is pretty well up the curve on that," says Edmonds.
Perhaps more important, News Corp. is set to take on financial cable network CNBC later this year, when it launches the Fox Business Channel. (CNBC, which broke the news of Murdoch's bid, has a contract with Dow Jones until 2012.) Although Murdoch has slowly been assembling a network team, a deal for Dow Jones would greatly speed up the job. "This is a very strategic move for Rupert. He needs content, an organization, information, and infrastructure," says Atorino. "And what sounds better, the Wall Street Journal Business Channel or the Fox Business Channel? It's a $5 billion no-brainer."
Family matters. The Bancroft family, which controls Dow Jones through a two-tier stock system that gives its shares more voting power, is not involved in front-line management and has always preferred to stay out of the spotlight. And though it appears to be unmovable at the moment, its "noes" may be softer than they appear. "I don't think their message is 'case closed,'" says Edmonds. "I still think Murdoch has a good chance."
After a meeting of directors last week, for instance, the company said only that the directors would "take no action" on the News Corp. bid. Perhaps more telling, it also disclosed that some four fifths of the family's voting power (or 52 percent of the company total) remained opposed to the Murdoch offer. That means that family members holding 12 percent of the company's votes have not decided to reject the offer, a sign that there may be deep divisions within the family.
It would not be the first time that later generations interested more in financial gains than corporate birthrights had forced the sale of a family-controlled newspaper. It happened with both the Louisville Courier-Journal and the Los Angeles Times.
The Bancroft family also could face mounting pressure from holders of common stock, as well as hedge funds and other high-risk investors. "If the Bancrofts flat-out refuse to sell, then it's game over," says Gamco's Haverty. "But I think it's unlikely that they would do that. It's a very generous bid, and News Corp. is the best strategic buyer."
This story appears in the May 14, 2007 print edition of U.S. News & World Report.