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Murdoch makes US$5B bid for Dow Jones

(Reuters)
Updated: 2007-05-02 10:40

'KNOCKOUT PUNCH'

The proposed deal places Dow Jones' enterprise value -- its market value plus debt minus cash -- at a lofty 15 times estimated 2007 earnings before interest, taxes, depreciation and amortization, well ahead of the newspaper group's average 8 to 10 times valuation, Benchmark Co. analyst Ed Atorino said.

The news pushed up Dow Jones shares by 54.7 percent and sparked a rally in other publishers and newswires. News Corp. shares fell 4.2 percent as analysts said more exposure to the slow-growing newspaper industry would weigh on financials.

The "strategic rationale, which, while dilutive, solidifies a new growth driver for News Corp.," Richard Greenfield, analyst at Pali Capital said. "It would create a multiplatform business news giant spanning online, print and television."

Sanford C. Bernstein analyst Michael Nathanson said the financial cost to News Corp. would not be "overly severe," and could dilute fiscal 2008 earnings by 1.6 percent to 6.2 percent excluding any cost cuts.

Murdoch's move turns up the heat in a newspaper market that has been in the crosshairs of dealmakers.

Dow Jones belongs to a class of family-controlled papers that have so far rebuffed shareholder efforts to reconsider their ownership structure, and analysts speculated the company could open itself to lawsuits by unhappy shareholders if it rejects the Murdoch bid.

Other publishers including Tribune Co. (NYSE:TRB - news) and Knight Ridder have gone private or sold key assets under pressure from shareholders. At Dow Jones, the big price premium offered by News Corp. would amount to a "knockout punch," one Dow Jones investor said.

"I think investors who own the shares will be almost unanimous in saying this is a price they cannot refuse," First Eagle Global Fund's Jean-Marie Eveillard, said. First Eagle fund owns Dow Jones shares.

Analysts and media reports speculated that Murdoch's interest could prompt other bidders to emerge, such as Bloomberg, the Washington Post (NYSE:WPO - news) or The New York Times (NYSE:NYT - news). Bloomberg said there was "no truth" to the speculation. The two newspaper publishers declined comment.

"If someone is willing to pay $6 billion for the company, why wouldn't someone else want to pay $8 billion," said Mark Boyar, whose Boyar Value fund owns roughly 200,000 Dow Jones shares.

"This has been a very poorly managed business and we always thought that Rupert Murdoch would be one of three or four people who should own it," he added. "There is a possibility that the Bancroft family would go to someone like Warren Buffett and ask quietly to be bought at a higher price."

CNBC KILLER?

But benefits to Murdoch's new business channel could be a long way off as Dow Jones has a contract with top-rated CNBC that runs until 2012. It was not immediately clear if, or how, the contract could be broken.

Longer term, Murdoch, who built a global media empire from a small newspaper business in Australia, aims to replicate the success News Corp. has had with its Fox News, which remains the top-rated cable news channel.

"This gives him instant credibility, instant content, instant brand name," Atorino said.

But the prospect of a takeover worried some veteran journalists at the Wall Street Journal, who wondered whether its conservative editorial pages would spill over to news pages.

"Mr. Murdoch has shown a willingness to crush quality and independence, and there is no reason to think he would handle Dow Jones or The Journal any differently," the Dow Jones employees' union, which opposed the bid, said in a statement.

The proposed deal would dent General Electric Co. (NYSE:GE - news)-owned CNBC cable business news network's leading position in cable TV business news, one News Corp. investor said.

"CNBC relies very heavily on the Wall Street Journal," said the investor, Larry Haverty, associate portfolio manager at Gamco. "This is a shot at the bell against CNBC."

CNBC reported the bid earlier today. GE had no comment.

News Corp.'s bid is for all shares outstanding of Dow Jones common stock and Class B stock in cash, or in a combination of cash and News Corp. stock, Dow Jones said.