By: E&P Staff
Younger members of the Bancroft family may be pushing for the sale of Dow Jones as a way of maximizing the value of their 30% interest in the company, Goldman Sachs notes this afternoon in a special report. It lists as possible buyers the Washington Post Company, New York Times Co., Gannett, and various private equity firms.
“It makes 100% sense to us that the Bancrofts would be dissatisfied with DJ’s performance,? Goldman’s report this afternoon observed. “Over the past year (before today’s rally) the stock is down 9% vs. a 16% gain in the S&P500. Over five years, the stock is down 45% vs. the S&P 500’s 16% decline.
“The stock’s underperformance has been a function of extraordinarily difficult operating conditions facing the Wall Street Journal, where a sharp fall off in ad volume (particularly in the B-to-B categories) has translated into a dramatic contraction in profitability over the last several years. From a recent peak of 22.6% in 2000, operating margins fell to 4.5% in 2002 and are projected to reach 8.4% in 2005. To some extent, the stock’s underperformance may also reflect investor apprehension over the company’s track record in reinvesting free cash flow, given the large writeoff that resulted from the unsuccessful investment in Telerate.
“The key issue, in our view, is not whether there are potential buyers for DJ despite its soft earnings record in recent years, but rather, is the family willing to give up its ownership stake after 50+ years of control? Potential bidders for DJ would likely include New York Times Company (which has already acknowledged that it approached DJ about a combination last year), Gannett, Washington Post, and various private equity firms.”
Newspaper stocks are enjoying a rally today based on Knight Ridder’s large share repurchase announcement Friday, followed by today’s renewed takeover speculation at DJ, Goldman states. But it adds: “Industry fundamentals are unchanged and remain very challenging on a near-term basis in the context of weak ad revenue trends and declining circulation revenues.”