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

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").

Zell also beat back a bid by private equity giant Carlyle Group, which wanted Tribune's TV business. In December, 2006, McClatchy (MNI) sold The Minneapolis Star-Tribune to private equity player Avista Capital Partners for $530 million, or less than half of what it paid in 1988.

If the experts are correct, a bidding war for Dow Jones could be far more interesting than the newspaper deals of recent months.

Contenders

For newspapers these days, business has become a matter of eat or be eaten. A deal for Dow Jones would increase the scale of the newspaper business, putting pressure on other companies to find partners. Trading in derivatives related to newspaper debt on May 1 suggested that "some investors believe newspaper companies such as New York Times and Gannett (GCI) are more likely to be acquired during a period of newspaper buyouts and consolidation," says Tim Backshall, chief strategist at Credit Derivatives Research.

In the field of strategic rivals, New York Times and Washington Post are both contenders for Dow Jones, and both have considered making a run at it in the past, media bankers say. But with respective market caps of $3.6 billion and $7.3 billion, neither company is well-positioned for a fight with News Corp., which has a market cap of $23 billion. Moreover, News Corp.'s various media properties, including MySpace and Fox News, are lucrative businesses, helping the company end 2006 with nearly $5.5 billion on its balance sheet—far more than either the Times or the Post.

News Corp. also has an advantage because its stock is likely to be regarded as a more powerful currency. Gannett, with a market cap of $13.6 billion, could also be a bidder, as could Thompson (TOC), with a market cap of $27 billion, and Pearson (PSO), which publishes The Financial Times. The British company has been trying to extend its Financial Times franchise from Europe to the U.S., and owning the Journal would make Pearson a truly global player in business and financial news.

Love Interest

A bid could emerge from an information provider or newswire. Privately held Bloomberg might make a logical acquirer, as would Reuters (RTRSY). However, the high price Murdoch has laid down would present a substantial hurdle for either company, Marlin notes.

Any number of private equity investors could easily afford to write a personal check for Dow Jones. One logical buyer might be Carlyle Group, which expressed an interest in Tribune. Private equity shop Thomas Lee led a buyout of Spanish-language media company Univision last year (see BusinessWeek.com, 12/28/06, "Private Equity's Big Winners"). Kohlberg Kravis Roberts and Blackstone are trying to take control of Clear Channel (CCU). Any of those private equity firms might have an interest in Dow Jones. For sheer financial power, private equity may be Rupert Murdoch's most powerful rival.

Private equity shops are unlikely to overpay, though. News Corp. has strategic reasons for buying Dow Jones. It would certainly bolster the nascent Fox business news channel, which is expected to hit cable later this year, competing with General Electric's (GE) CNBC. And Murdoch "would love" to own the Journal, one person close to News Corp. says. That's why, despite any high-stakes battle for the Journal, the winner may be the guy who started the bidding.


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