Smoking Out Suitors for Dow Jones

News Corp. has laid down an aggressive offer for the news organization, but rival bidders could pony up more

by Steve Rosenbush

News Corp. Chairman Rupert Murdoch has a reputation as one of the corporate world's savviest dealmakers, thanks in part to his $580 million acquisition of Internet powerhouse MySpace. Now Murdoch is back, with a bigger and possibly even bolder proposal: a $5 billion offer for Dow Jones, publisher of a blue chip business news empire that includes The Wall Street Journal. Murdoch offered an eye-popping 65% premium for the company, which has been struggling, as have most newspapers around the world (see BusinessWeek.com, 5/1/07, "Murdoch Makes a Play for Dow Jones").

Still, many experts believe Murdoch's News Corp. (NWS) will face rival bids that could push the ultimate value of any deal even higher.

Plum Asset

"The bidding isn't over yet. The price is likely to go higher," says Ken Marlin, managing partner and founder of Marlin & Associates, a media and technology-focused investment bank in New York. "The New York Times Co. (NYT), The Washington Post Co. (WPO), and other large U.S. and international newspaper groups are going to have to look hard at it," Marlin says.

Rival bids could emerge from newspaper companies, private equity firms, or private individuals. The Bancroft family, which controls Dow Jones, has indicated it will vote against the bid.

At a time when money is pouring back into the highly challenged newspaper sector, Dow Jones is a key asset. Its flagship, The Wall Street Journal, the second-largest U.S. newspaper, has a powerful brand and a news operation that speaks directly to a wealthy audience of business and finance professionals. The Journal also sports a successful, subscription-based digital newspaper, a rare exception in a world where advertising-supported models are the norm. The business news and information company is rounded out by Barron's, a news weekly, Dow Jones Newswires, and MarketWatch.com, a consumer-oriented Web site. That mix, says Marlin, "should bring competitors out of the woodwork."

Lots of Action

News Corp.'s bid follows months of M&A activity in the newspaper industry, which faces intense competitive pressure from digital media such as Google (GOOG) and myriad niche players. Private equity firms, having collected fortunes by restructuring businesses in other distressed sectors, sense a similar opportunity among newspapers. For their part, newspaper publishers are seeking scale as they compete with readers' migration to properties such as Google and Yahoo! (YHOO).

In April, real estate investor Sam Zell beat out rival billionaires Ron Burkle and Eli Broad in a bidding war for newspaper empire Tribune Co. (TRB) (see BusinessWeek.com, 4/2/07, "Zell's Big Plans for Tribune").