A straight purchase of Dow Jones would be a non-starter for Pearson shareholders. It’s not that the idea of scrunching the British publisher’s Financial Times and Dow’s Wall Street Journal doesn’t have its merits. The trouble is that Pearson has very little credibility as manager of the FT—let alone the Journal as well.
The latest report that Pearson boss Marjorie Scardino is looking at competing with Rupert Murdoch’s $5 billion offer to buy Dow has a twist. Pearson is said—by no less than WSJ.com—to be looking for a partner, such as General Electric or Hearst, in carving up Dow. It’s hard to judge the idea without knowing its details. And managing any bidding consortium is always very tricky. But if structured properly, it might just have a way of squeezing through. For Pearson’s shareholders, any deal should hold out the promise of separating the newspaper business, with its global challenges and low-growth profile, from Pearson’s education and testing assets. One idea might be to merge the newspapers and then spin the combo off to Pearson’s shareholders.
In theory, this could create value. If allowed by anti-trust regulators, a merger of the world’s two biggest financial papers offers mouth-watering synergies. By combining printing facilities, sales and marketing functions, purchasing, administration and distribution, substantial costs could be cut. Big editorial savings might also be possible, particularly if the FT decided to, say, shut down the WSJ’s Asian and European papers.
But the execution risk would be huge. And Pearson’s ability to extract money from the newspaper it already owns gives its management little credibility to warrant such an undertaking. It’s hard to see how Pearson shareholders would support a dilutive doubling-up on a troubled sector led by Scardino. If anything, the notion that Pearson is considering a deal suggests it fears a Murdoch-controlled Journal.
That may lead shareholders to a different conclusion: that Pearson should sell the FT. And, hey, with Dow Jones’ controlling shareholders still balking at a sale to Murdoch, perhaps there’s even a chance the FT could make a nice consolation prize.
Dow Jones is a minority investor in breakingviews. The WSJ also carries a daily breakingviews column. It is also a content provider to Mint.