Rupert Murdoch deserves an A for opportunism. The News Corp. boss is brandishing his best card in the poker game over Yahoo Inc.’s future—MySpace, the social networking website. But as appealing as a trade of MySpace for a slug of Yahoo might be for Murdoch’s shareholders, it wouldn’t fly with Yahoo’s owners.
Yahoo is in talks that could lead to the acquisition of News Corp.’s MySpace, The Wall Street Journal (WSJ) reports. News Corp. publishes WSJ. Mint has an exclusive partnership in India with WSJ.
Murdoch’s News Corp. is a minority investor in breakingviews following its recent acquisition of Dow Jones and Co. Dow Jones’ WSJ also carries a daily Breakingviews.com column.
When compared with Microsoft Corp.’s $44 billion (Rs1.75 trillion) offer, the numbers just don’t stack up. True, a Yahoo-MySpace merger carries strategic logic. Yahoo has failed in social networking but leads in display advertising. And though MySpace has certainly blossomed since Murdoch bought it for a song three years ago, its value is not adequately reflected in News Corp.’s stock price.
So a deal that puts a value on MySpace would be great for Murdoch. At 20 times earnings before interest, taxes, depreciation and amortization (Ebitda), Fox Interactive Media, which houses MySpace, would be worth about $5.3 billion, according to Sanford C. Bernstein and Co. Llc. research. That’s nearly $2 on the News Corp. stock price.
But News Corp. isn’t likely to settle for that price. If speculation is to be believed that Murdoch is seeking a 20% stake in the merged Yahoo-MySpace, Yahoo would need to issue 400 million shares to meet his demands. That would value MySpace at $12 billion—or a whopping 46 times Ebitda.
Yahoo shareholders wouldn’t countenance paying so much for a company that derives much of its income from an advertising deal with arch-rival, Google Inc. Add to this investor concerns about the capacity of Yahoo’s already discredited management team to integrate such a large acquisition, and it’s hard to see how a MySpace deal could be anything more than a spoiling tactic. But, hey, that may be what it takes to get $35 a share from Microsoft.