By Cecile Daurat and Leon Lazaroff, Bloomberg
New York: The Bancroft family members who control more than 50% of the company’s voting shares have rejected a $5 bn (Rs21,000 crore) takeover bid by Rupert Murdoch’s News Corp.
News Corp., the third-largest US media company, announced its $60-a-share bid on 2May. The offer was 65% above Dow Jones’s closing price on 1May, resultantly shares jumped to $57.88.
The sharemarket buzz is that News Corp.’s proposal, though rejected will spur other bids. Dow Jones would give a buyer the Wall Street Journal, the second-biggest US newspaper by circulation, wsj.com website, Dow Jones Newswires and Barron’s. Dow Jones would satisfy Murdoch’s long-expressed desire to own the 125-year-old company and blend its assets with an empire of 170 newspapers, Fox News cable network and 20th Century Fox studio.
“News Corp.’s bid may lead other bidders to recognize potential value of assets that are prized at Dow Jones” said Kara Cheseby, analyst with T Rowe Price Group Inc. in Baltimore. T Rowe is Dow Jones’ largest shareholder with 15% of Class A shares.
It described the offer as “friendly” in a separate statement and said the bid may be in cash or a combination of cash and shares.
In an interview on Fox before the Bancrofts rejected the offer, Murdoch said he had not spoken to family members directly, though he planned to in the next couple of weeks. “There’s plenty of time and we’ll just take it calmly and hope that they will take it calmly,” he said.
Any sale hinges on the Bancroft family, which controls about 64% of shareholder votes through its ownership of Class A and B shares, while owning 25% of the shares.
News Corp.’s bid values Bancroft family’s stake at about $1.23 bn (Rs 5,166 crore) Christopher Bancroft, his cousin Elizabeth Steele and their cousin Leslie Hill, a retired airline pilot, are on the 14-member board. The Bancrofts are descendants of Jane Bancroft, whose stepfather, Clarence Barron, acquired Dow Jones in 1902, 20 years after it was founded by Charles Dow, Edward Jones, and Charles Bergstresser.
Dow Jones began by delivering handwritten bulletins of stock and bond trading news in New York. An afternoon newsletter started the next year and went on to become the Wall Street Journal.
Stock market reaction
Dow Jones shares, which fell 4.4% this year before today, gained $19.87, or 55%, to $56.20 at 4 pm at the New York Stock Exchange composite trading after News Corp.’s offer.
Last time the shares traded above $60 a share was in 2001. Class A shares of New York-based News Corp fell 94 cents to $21.45.
“A $60 bid for Dow Jones has to be considered very seriously,” said Michael Price, president of MFP Investors in Short Hills, New Jersey, which owns 351,000 Dow Jones shares. “Murdoch sees the potential of tremendous economies of scale putting the news organizations together.”
Meanwhile newspaper stocks surged with Standard and Poor’s 500 Publishing and Printing Index climbing 11%; Gannett,largest newspaper publisher and owner of USA Today, rising $1.11, or 2%, to $58.17; New York Times jumping 5% to $24.58 and Washington Post gaining 2.9% to $765.30.
“WSJ greatest newspaper” : Murdoch
Murdoch coveted Dow Jones in the past and described the Wall Street Journal as “the greatest newspaper in America.”
“This is a big, generous offer,” he said in an interview on Fox News Channel, going on to describe the Bancrofts as “great guardians” of WSJ and confirming that News Corp. would help grow circulation by stepping up investments and expanding news coverage.
News Corp. is planning to start its Fox business channel by the end of this year and would be competing with CNBC and Bloomberg Television.
“This is quintessential Rupert strategy,” Lawrence J. Haverty Jr., associate portfolio manager at Gamco Investors Inc. in Rye, New York is reported to have said. It’s a very big idea as opposed to a very small idea. This is not a newspaper, Dow Jones. This is a financial electronic collection and dissemination system of news.”
That may appeal to other companies. General Electric Co., owner of financial news channel CNBC, may be a buyer, Haverty said. GE spokesman Russell Wilkerson however, declined to comment.
Precludes some bids
Murdoch’s offer of $60 may put off potential candidates. The offer is about 17 times Dow Jones’ 2007 profit, said Prudential Equity Group analyst Steven Barlow. Newspaper assets have been selling at 10 to 11 times earnings. Sam Zell’s proposed acquisition of Tribune Co. was 9.2 times Tribune’s 2006 earnings.
CNBC reported that Murdoch made the offer in a letter to Dow Jones board members two weeks ago. “Clearly, it’s a property that News Corp. wants badly and badly enough that it would seem to preclude a lot of competing bids,” said David Joy, chief market strategist at RiverSource Investments LLC, which owns News Corp. stock.
The newspaper industry is suffering from an exodus of readers and advertisers. US newspaper circulation fell 2.1% in the six months through 30 March. Dow Jones first-quarter profit fell 63% after revenue at the WSJ declined. CEO Richard Zannino has been buying assets such as database manager Factiva to help reduce the company’s reliance on newspapers.
The Wall Street Journal’s US advertising sales were little changed last month from March 2006, an improvement from a 10% decline in February. The decline shrank Dow Jones’s market capitalization to $5 billion, or 7% of News Corp.’s value. Murdoch has been expanding outside newspapers, snapping up social-networking site MySpace.com in 2005 for $580 million.
The next few days would be crucial in deciding the fate of both Dow Jones and News Corp. Watch this space for updates.