News Corp’s Dow Jones Win Makes Unimaginable Imaginable
Important Details: Rupert Murdoch’s will, and savvy last-minute deal-making, has won him the prize long coveted. The acquisition of Dow Jones by News Corp. is now all but a formality. In May, News Corp had surprised the company and the industry with its outsized 65% premium on the struggling Dow Jones share price. That $60 per share price held, scaring away any other potential suitors from within the industry. In the end, no other serious bid for the whole company surfaced, an editorial board (to oversee the company’s journalistic integrity) was agreed on, and finally the Bancroft family acquiesced to the bidder it had at first rejected.
The sales price will be $5.X billion, about 17X EBITDA for Dow Jones. That’s a premium beating any other news company purchase in recent history, with most valuations in the 9-11X EBITDA range.
Murdoch’s justification for the premium has been clear and unwavering: he believes he can recoup the investment and amortize the high cost of Wall Street Journal/Marketwatch/Barron’s journalism by multiplying the distribution of that content. In coming years, business and finance news and data users will be able, according to the Murdoch vision, to access the content on ubiquitous TV monitors, cellphones, PDAs and on newsprint. The ability to yield two revenue streams (increasingly lucrative web advertising (especially video) and reader/user/subscriber payment) — make the upside different than other recent press acquisitions. Murdoch believes that business content has unique value online: “You can charge for it,” he has said in the past.
Now, with the blessing of an apparent majority of the Bancroft family super-voting shares and the formal support of the Dow Jones board, all that is required is a vote of shareholders, which has not yet been set.
Implications: First Knight Ridder, then Tribune (still in progress) and now Dow Jones. What would have been unimaginable three years ago has come to pass: the wholesale reshuffling of U.S. press companies to new owners. The foundation under those companies rumbled for a decade, but now the earthquake is in full motion. This sale will go down as a signal event in American journalism. The Journal particularly is an iconic brand and leading business newspaper in the nation, as well as #2 in circulation to USA Today.
Outsell believes that Rupert Murdoch’s move is a master stroke, seeing the value of a set of assets, writ larger in the context of the greatest business boom the world has ever seen. His integration of Dow Jones into News Corp will not be an easy one but, if handled well, sets the company up to grasp a growing opportunity worldwide. Among his challenges are continuing investment in the news resources while print advertising continues to decline, maintaining trust in the product, and making sense of the company’s numerous brands. He’ll also have to re-draw TV alliances, as he sorts out the CNBC-Wall Street Journal “exclusive” relationship, and figures out how to leverage Dow Jones content effectively this fall when he launches the Fox Business News Channel.
More widely, though, there are lessons in this drama for all news publishers:
- Family-controlled super-voting shares are not a mountain, but a climbable hill: Faced with significant premiums, the threat of shareholder suits and inevitable family disagreements, family ownership can be but a speed bump for a determined buyer.
- White Knights are in short supply: Under pressure to sell, journalism companies have looked in vain for “friendly” buyers.
- Publishers better value their own assets before interlopers do: If Dow Jones had seen the same upside that News Corp sees and had taken faster-moving strategic moves to claim it, it might have been able to stay independent.
- The business and finance news sector is just beginning to shake. News Corp’s buy forces a re-consideration of business and finance news assets. Outsell believes it will force publishers to ante up — greater product and distribution investment, more strategic partnerships, an eye toward acquisition — or look at becoming a second-tier players. Time Warner (Fortune, Money), McGraw-Hill (Business Week) and Forbes are all struggling with print ad page sales. The new Thomson Reuters can be ascendant, if it synergizes its new parts. Bloomberg’s multimedia content-producing machine is well-suited to partnership. Pearson must decide whether to ramp up the FT, taking on News Corp’s global play, or succumb to shareholder pressure to sell. And of course, we’ll soon see the fate of Factiva, Dow Jones’ fastest-growth product, as News Corp sorts out its purchase, so we can expect moving and shaking in the search aggregator sector as well.