By: Jennifer Saba
It’s tough to walk away from $5 billion — at least that is the prevailing wisdom on Wall Street regarding the latest twist on Rupert Murdoch’s offer to take Dow Jones off the hands of the Bancroft family.
Last night’s news that the Bancrofts were willing to meet with Murdoch after his repeated pleas in addition to the statement the company planned to explore strategic options gives Murdoch an advantage.
“I think a deal will get done,” said Alexia Quadrani, an analyst with Bear Stearns. “It’s too rich of an offer and the industry is just too challenged right now.” She says any number of circumstances could have persuaded the family to meet with Murdoch including Dow Jones largest outside shareholder T. Rowe Price, which agitated for the deal earlier this week.
“I’m not surprised,” observed Prudential Equity research analyst Steven Barlow. “Murdoch usually wins. The family needs to have conversations with him.”
Newspaper analyst John Morton, however, doesn’t believe Murdoch’s success is a foregone conclusion. “It’s conceivable that part of the Bancroft family that has resisted the bid wants to do things to soothe those members of the family that do want something to happen,” Morton explained. “Having a meeting with Murdoch is one way to do that.”
But Barlow thinks it’s highly unlikely that a white knight investor will swoop in and make a better offer. “No one else is going to pay $60 [per share] — a fair price,” he said. “Could Murdoch pay $65? Sure. It’s no big deal for Murdoch.” If Dow Jones goes for $65, Barlow said it would represent a multiple of 18 times 2007 estimated EBITDA.
The Thompson/Reuters merger may be another reason the Bancrofts have reconsidered the proposition. When Murdoch first made the offer in May, slightly more than 50% of the family said they would vote down the deal. “I think it makes a big difference,” said Barlow about the Thompson/Reuters marriage, which will put Dow Jones Newswires at a disadvantage. “The Journal is under pressure, do you want another asset under pressure? And this one makes money!”
Ken Doctor, an affiliate analyst with Outsell Research wrote in his blog, Content Bridges, that over the past weeks, the Bancrofts have been feeling the pressures of the industry: “Against that falling sky, the Bancrofts, and apparently DJ management, feels increasingly … well, small. So, re-enter Big Uncle Rupert.”
Benchmark Managing Director Edward Atorino is also pretty sure Dow Jones is going to end up in the stable of News Corp. “Murdoch will prevail,” he says, noting that Murdoch’s strategy is to take Dow Jones and build out a global financial network as opposed to buying it as a trophy.
Atorino speculates that other potentially interested parties like Bill Gates or Google will sit out on the sidelines. “It wouldn’t make any sense … expect to preserve The Wall Street Journal,” he said. “It’s only a newspaper. I’m sure people hate me for saying that.”
That $60 per share offer? JOhn Morton suggests it could climb higher. Compared to past transactions, Murdoch’s premium of about 67% is not so high, Morton said: “When Tribune took Times Mirror, it was a 90% premium. … Dow Jones and the Wall Street Journal are basically the Coca-Cola of global financial journalism. There’s a huge amount of value in those brand names that has not been reflected in the [stock].”
Crain’s newyorkbusiness.com quotes Porter Bibb, managing director at Mediatech Capital Partners: “All the gnashing of teeth and wringing of hands will come to naught.” He’s believes the Bancrofts will convince Murdoch to bid up the price to between $65 and $68 dollars a share.