A year ago, Dow Jones shareholders voted to sell their company—publisher of the world’s most influential business newspaper, The Wall Street Journal—to Rupert Murdoch’s News Corp.
At the time, there was much teeth-gnashing among members of the Bancroft family, who controlled Dow Jones. The price, $5 billion (Rs23,750 crore today), stifled most of these groans.
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Even the grumpiest Bancrofts should now be smiling—while News Corp. shareholders grimace.
Though it may count as a corporate finance achievement, Murdoch’s gambit for Dow Jones has played out poorly for his investors. After all, their interest in News Corp. deals isn’t derived from gaining the ability to write headlines or influence politics, but rather from the financial returns they generate.
And on this score, the deal has so far come up short. The Dow Jones transaction saddled News Corp. with greater exposure to newspapers and the financial industry, just as both entered their darkest hours. Murdoch’s shareholders—among which he and his family, with a 38% stake, are the biggest—are paying the price.
News Corp. shares have plunged 61% in the past year. By contrast, shares of Walt Disney Co., which in contrast to News Corp.’s strategy exited old-media businesses like newspapers and radio over the past few years, shed 31%. Even perennial underperformer Time Warner Inc. has fallen by less, some 40%, over the same period.
Newspapers are in a disastrous state. Last week, Sam Zell’s Tribune, publisher of the Los Angeles Times and Chicago Tribune, filed for bankruptcy protection. Detroit’s biggest newspaper is ceasing daily home delivery. The New York Times is mortgaging its headquarters to raise cash.
National advertising fell by 18% in the third quarter, according to the Newspaper Association of America. At the same time, Wall Street—the primary consumer of Dow Jones’ most profitable products, from newswires to WSJ advertising space—is on life support. Banks around the world are sacking staff, pulling out of business lines and finding themselves at the mercy of governments for capital and funding.
Imagine, then, what Dow Jones would be worth if the Bancrofts had not ceded the company to Murdoch a year ago. News Corp. does not split out Dow Jones’ performance, so it’s possible that under new ownership its profitability has improved, though the investments it has made in the paper around the world since the purchase make this unlikely.
So the best way to get a handle on how much value the Dow Jones deal has destroyed for News Corp. shareholders is to look at similar companies. Gannett has seen advertising revenue at its flagship paper USA Today fall by 7% in its last quarter. Its stock is down 79% over the year. NYT’s advertising revenue fell 16% in October alone, and its stock price has fallen 57%.
Neither company is a perfect comparison since they are less exposed to the financial industry. But in previous economic cycles, when it was an independent company, Dow Jones stock performed even worse from peak to trough. Still, to be charitable, assume Dow Jones is worth half the $3 billion it traded at before Murdoch made his offer. On that basis, News Corp. shareholders forfeited $3.5 billion of value to the Bancrofts and their fellow shareholders.
Of course, as the author Michael Wolff recounts in his recent biography The Man Who Owns the News, Murdoch wasn’t mainly motivated by the WSJ’s financial value, but rather its unrivalled influence on global business and politics. That’s why, before making his bid, he artfully cashed Liberty Media chairman John Malone out from the shareholder roster by exchanging control of satellite group DirecTV for a menacing stake in News Corp. that Malone had amassed.
Right now, Murdoch’s shareholders may be too busy nursing other, more damaging, wounds to take note of the Dow Jones milestone. But as News Corp. continues to substantially underperform its media rivals—and the issue of who succeeds the septuagenarian Murdoch looms larger—they may become a more restive bunch at its next anniversaries.
(News Corp. became a minority investor in Breakingviews.com following its acquisition of Dow Jones. Mint has an exclusive content partnership in India with WSJ and breakingviews.com)