By: E&P Staff and AP
The Bancroft family, which owns a majority stake in the publisher of the Wall Street Journal, is planning to vote against Rupert Murdoch’s $60-per-share bid for Dow Jones & Co. — despite speculation that the unsolicited offer was too good to refuse, the company said after markets closed Tuesday.
Murdoch’s surprise offer represented a premium of nearly $23 a share. When it was revealed Tuesday morning, the news quickly sent the stock soaring by more than 57% before trading was halted.
Dow Jones said that a Bancroft family representative who sits on the board of directors, Michael B. Elefante, informed the board that “members of the family and the trustees of trusts for their benefit have advised him that they will vote shares constituting slightly more than 50% of the outstanding voting power of Dow Jones as of April 30th excluding options against the proposal submitted by [Murdoch’s] News Corporation to acquire all of the outstanding shares of Dow Jones common stock and Class B common stock for $60.00 per share.”
Dow Jones did not say why the Bancrofts had decided to oppose the bid. The company added that the board “would factor this information into its evaluation.”
Writing late Tuesday for TimesSelect, Joseph Nocera, the respected columnist for The New York Times, observed: “If that does happen, though — if the family tells Mr. Murdoch to take a hike — the likely outcome will be that Dow Jones stock will drop, not back to the mid-30s, where it was before yesterday, but far, far lower. And one has to wonder how the young Bancrofts will feel about Dow Jones’s heritage then.
“For people in the newspaper business, it is a wonderful gift that the family is so willing to stand behind The Wall Street Journal, even as its economics deteriorate. But when families that own one key asset become divided, the solution is usually to sell the asset. Just ask the Binghams of Louisville. Or the Chandlers of Los Angeles.
“A Bancroft family member once told me, ‘Without The Wall Street Journal, we’re just another rich family.’ So long as the family feels that way, Rupert Murdoch will be able only to admire The Journal from afar. But if that ever changes, it’s his.
“My guess is that his $60-a-share offer may well begin the process of finally moving the family in his direction.”
Murdoch’s offer — which reportedly would be in cash, or in a combination of cash and News Corp. securities — electrified a market that recently has heard nothing but bad news from the newspaper industry.
The big premium on Dow Jones stock price came at a time when the valuation of big newspaper properties like the Wall Street Journal were widely perceived as have been perhaps permanently undermined by the low price fetched for The McClatchy Co.’s Minneapolis Star Tribune, and by the desultory participation in the auction of Tribune Co. that attracted no final bids from a newspaper company. Tribune will be taken private in a deal that gives Chicago real estate investor Sam Zell 40% of the media giant for $350 million.
After opening at $37.12, CNBC reported rumors of the Murdoch offer, and Dow Jones’ shares spiked $20.95 (57%), jumping to $57.28 before trading was halted late Tuesday morning on news pending. Before the news, the shares had traded within a 52-week range of $32.16 to $40.08.
CNBC reported that the unsolicited offer was made two weeks ago in a letter to Dow Jones’ board of directors.
In a note released to investors this afternoon Bear Stearns analyst Alexia Quadrani wrote that Murdoch’s offer represents a multiple of about 14 times 2008 estimated EBITDA. She noted that recent transactions in the newspaper industry have been in the range of 9 to 11 times EBITDA.
“While we do not believe the [Bancroft] family was looking to sell the company and does have concerns about maintaining journalistic integrity, this offer may be hard to refuse,” wrote Quadrani.
“We believe [Dow Jones] will likely accept this transaction given the rich valuation which will unlikely be attained in this depressed newspaper environment through organic means,” she concluded.
An article in the Wall Street Journal about the news speculated that the offer “could set off a bidding war” for the company, mentioning the possibility that rival suitors like the Washington Post Co., the New York Times Co., and Bloomberg could jump in the fray.
Whether any other company will make a move now that the Bancrofts have made their opposition to Murdoch’s offer is unclear. Because of the company’s stock structure, it cannot be taken over without the consent of the Bancroft family.
In its first public reaction to the offer, Dow Jones said in a statement: “The Board of Directors and members and trustees of the Bancroft family, who hold shares representing a majority of the Company’s voting power, are evaluating the proposal. There can be no assurance that this evaluation will lead to any transaction.”
Dow Jones is the parent company of The Wall Street Journal, Barron’s, Marketwatch, and a syndicated newswire. It took in $1.78 billion in revenue in 2006.
Murdoch has long been known to be interested in Dow Jones. Speaking at a conference in New York in early February (E&P archives), Murdoch actually had said his interest in Dow Jones was “cooling,” because he didn’t believe the company would be up for sale any time soon, and that — even if it were a possibility — it would be hard to sell to his shareholders on the acquisition.
Nonetheless, he said at the time that he believed that the company’s Wall Street Journal has a “wonderful brand” that had the possibility of competing nationally with the New York Times. He said the paper’s recent shrink in size made it “more readable,” but he indicated that he didn’t agree with the changes that the paper has made in putting breaking news largely on the Web while filling the print edition with longer, more analytical pieces.
Taking the Journal’s hard news onto the Web “has taken some of the urgency out of [the print paper,]” he said at the time, describing how now he often finds articles in the Journal that he thinks will be interesting and saves for later but then never gets around to reading.
Like other newspaper publishers, Dow Jones’ shares have been beaten down over the past few years amid sluggish advertising and rapidly changing media consumption habits as more readers and advertising dollars move to the Internet.
But that hasn’t prevented an unprecedented level of acquisition activity in the industry. In addition to the shareholder discontent that prompted the Tribune deal, and McClatchy’s blockbuster acquisition last summer of Knight Ridder, the New York Times Co. — like Dow Jones controlled by a family through a special class of shares — facing investor unrest over its own sluggish financial performance. Last week shareholders withheld 42% of their votes for directors, a public rebuke to the Sulzberger family, which controls the company.
Shares of McClatchy gained $1.28, or 4.4 percent, to $30.18 on the NYSE. Shares of Washington Post Co., another publisher with two classes of shares, gained $20, or 2.7 percent, to $764 on the NYSE. New York Times stock gained $1.75, or 7.5 percent, to $25.15 on the NYSE.
News Corp. started out in the newspaper business and still owns a large number of papers, largely in the United Kingdom and Australia, including The Sun tabloid in England, The Times of London and the New York Post.
The company is now a major global media conglomerate and owns the Fox broadcast network, Fox News Channel, MySpace, the Twentieth Century Fox studio and satellite broadcasters in Europe and Asia.
News Corp., which has a market value of about $70 billion, could easily afford the price it is offering for Dow Jones. The company had $5.4 billion in cash on its balance sheet at the end of the year, and could readily raise more through borrowings. Fitch Ratings, a credit rating firm, said that even if News Corp. funded the $5 billion purchase price entirely with debt that it wouldn’t affect the company’s debt rating.
Related: Union Representing DJ Employees Blasts Murdoch’s Offer