Leon Lazaroff, Bloomberg
New York: Rupert Murdoch’s $5 billion (Rs20,609 crore) takeover bid for Dow Jones & Co. values the Wall Street Journal publisher higher than Google Inc., based on a measure used by analysts.
News Corp.’s $60-a-share offer represents almost 40 times Dow Jones’s projected 2007 earnings, data compiled by Bloomberg show. Google, owner of the world’s largest search engine, trades at about 32 times projected 2007 profit.
“Dow Jones’s organic growth doesn’t come anywhere close to Google,” said New York-based UBS AG analyst Brian Shipman, who has a “neutral” rating on Dow Jones stock. “If you’re going to support that kind of valuation, it should have that kind of growth.”
Murdoch is pricing Dow Jones at almost double the valuation McClatchy Co., publisher of the Miami Herald, put on Knight Ridder Inc. last year and that real estate billionaire Sam Zell is offering for Tribune Co., owner of the Los Angeles Times.
News Corp.’s bid represents about 17 times Dow Jones’s projected 2007 profit before interest, taxes, depreciation and amortization, or Ebitda, based on estimates by Prudential Equity Group analyst Steven Barlow in New York.
McClatchy, based in Sacramento, California, paid 9.5 times projected profit on that basis for Knight Ridder last year, Shipman said. Zell is offering 10 times earnings for Tribune. Gannett Co., the largest U.S. newspaper publisher, trades at 12 times projected 2007 profit.
‘Hard to Justify’
“Given that you can buy GE at 16 times earnings, it’s hard to justify an acquisition multiple as high as Murdoch’s bid for Dow Jones,” said Robert F. Bruner, dean of the University of Virginia’s Darden School of Business and author of Deals From Hell. “Investors need to ask carefully what synergies might arise from the combination of News Corp. and Dow Jones that could justify the extremely high multiple.”
Toronto-based Thomson Corp., owner of the Westlaw legal database and TradeWeb bond trading network, has put a similar value on London-based Reuters Group Plc, the dominant currency- trading service and operator of 196 news bureaus.
Thomson has offered 8.77 billion pounds ($17.5 billion) for Reuters, or 33 times next year’s estimated earnings and 17 times Ebitda.
Buying New York-based Dow Jones would give Murdoch, News Corp.’s chairman, a global financial news organization to support the Fox business channel he plans to start this year as well as his television and Internet properties in Europe, China and India. Winning Dow Jones also would expand his stable of 170 newspapers to include the Journal, which has the biggest U.S. circulation after Gannett’s USA Today.
“Dow Jones isn’t Google, but for Murdoch it offers a means to become No. 1 worldwide in business news, and business news has become one of the most lucrative magnets for advertisers,” said Ken Doctor, an analyst at Burlingame, California-based Outsell Inc., a market-research company.
News Corp. owns 35 U.S. television stations, the Fox News Channel, film studios and cable-TV and satellite networks in the U.K., Italy and Asia. The company’s newspaper holdings include The Times of London and the New York Post.
Dow Jones rose 55% percent on 1 May, when Murdoch’s offer was announced, while News Corp. fell 94 cents, or 4.2%, to $21.45. Dow Jones fell 45 cents to $51.75 yesterday in New York Stock Exchange composite trading. New York-based News Corp. traded at the equivalent of $21.67 at 12:58 pm in Germany, up 41 cents from yesterday’s close in New York.
Reuters shares surged a record 25% to 615.75 pence on 4 May, after the company said it was approached about a takeover. Reuters shares fell as much as 14.5 pence, or 2.4%, to 587 pence in London today.
Credit-default swaps-based on $10 million of News Corp debt are little changed at $17,000 since it made its bid for Dow Jones, according to Deutsche Bank AG. Credit-default swaps are based on corporate bonds and are used to speculate on a company’s ability to repay debt. An increase indicates a worsening in credit quality.
Bloomberg LP, the parent of Bloomberg News, competes with Dow Jones and Reuters in selling news and information to the financial services industry.
Murdoch’s interest in Dow Jones centers on the content and prestige of the Journal, said Hal Vogel, a New York-based analyst and author of Entertainment Industry Economics.
News Corp., he said, would probably use the Wall Street Journal to expand business news programming on the company’s television outlets in Europe, through the BSkyB cable network, and in Asia, through Star TV.
“Content is king sounds logical, but if you can’t distribute it, it’s worthless,” said Vogel. “The Wall Street Journal has the ability to produce content, but they don’t have anywhere near the global distribution that Rupert Murdoch has.”
Murdoch, 76, probably sees ways to integrate Barron’s, wsj.com, the MarketWatch financial Web site and Dow Jones Newswires into his broadcast, cable, Internet and print businesses, said Michael Chren, managing director of Allegiant Asset Management Co. in Palm Beach Gardens, Florida, which had 780,000 Dow Jones shares as of March.
“It’s very difficult to value the synergies that Murdoch apparently believes can be created,” Chren said. “What is clear is that Murdoch is a strategic buyer coming able and willing to fold Dow Jones into his global media empire and create tremendous value.”
Murdoch spent $580 million in 2005 to buy MySpace.com, the social networking site with $79 million in sales. In 2006, MySpace reached an advertising agreement with Mountain View, California-based Google that will pay News Corp. $900 million over three years.
Murdoch has touted Dow Jones’s success on the Internet as one of the reasons for the offer, News Corp. spokesman Andrew Butcher said in an interview. Dow Jones got 40% of its $1.78 billion in sales last year by disseminating information on the Internet and hand-held devices including mobile phones.
Dow Jones spokesman Howard Hoffman declined to comment.
With $5.4 billion in cash as of 31 December, Murdoch could buy Dow Jones without adding to his company’s $11.4 billion in borrowings, credit rating company Standard & Poor’s said.
“This is clearly sufficient” to complete the purchase, Standard & Poor’s said on 1 May. S&P has a BBB investment grade rating on News Corp. debt.
Buying Dow Jones at $65 a share would reduce News Corp.’s projected 2008 profit of $1.30 a share by two cents, said Richard Greenfield, an analyst at Pali Capital Inc., who rates the shares “buy.”
“Investors have initially disagreed with the vast majority of News Corp.’s acquisitions,” Greenfield wrote on 3 May. “The overwhelming majority have created substantial value.”
Even with the purchase, News Corp. would still be able to buy back $10 billion of its stock in 2008 and 2009, Greenfield wrote.
Members of the Bancroft family, who have controlled Dow Jones since 1902 and hold 64% of the voting power, say shares equaling 52% oppose a sale to Murdoch.
Another block of family shareholders, the Ottaways, who sold their chain of community newspapers to Dow Jones in 1970, said they would vote their 6.2% stake against a sale.
Without a sale, shares of Dow Jones will lose much of the almost $20 they gained when Murdoch announced his bid, said Chren of Allegiant Asset Management.
“If the Bancrofts turn down Murdoch and a deal doesn’t get done, the stock probably falls into the low $40s, retaining some takeout value,” Chren said.
— With reporting by Hamish Risk in London