Murdoch offers $5 billion for Wall St. Journal owner

By Thomas S. Mulligan and Joseph Menn

May 2, 2007 12 AM PT

Times Staff Writers

NEW YORK —

Rupert Murdoch made a surprising $5-billion bid Tuesday for Dow Jones & Co., parent of the Wall Street Journal, a deal that would unite the most prestigious name in business journalism with News Corp. properties such as the Fox News channel, the New York Post, “American Idol” and MySpace.com.

The driving force behind the unsolicited offer appeared to be Murdoch’s planned launch this summer of a financial news channel that would compete with CNBC. Dow Jones’ expertise online also could help Murdoch move his worldwide newspaper empire more quickly into the digital era.

The $60-a-share offer by Murdoch’s News Corp. represented a 65% premium over Dow Jones’ Monday closing price of $36.33. It sparked a run-up in sluggish newspaper stocks, a panic in the Journal’s newsroom and speculation that a bidding war could erupt for Dow Jones among some big names in media.

Potential bidders “are going to have to go home tonight and ask themselves if they’ll ever get another chance like this,” said John Linehan, portfolio manager for T. Rowe Price, whose 11.3% stake in Dow Jones makes it the largest shareholder after the Bancroft family, which holds 64% of the voting shares.

Names being floated on Wall Street as possible bidders included newspaper publishers Gannett Co. and New York Times Co.; Internet giants Google Inc. and Yahoo Inc.; Microsoft Corp.; and General Electric Co., parent of NBC Universal and cable TV’s CNBC business channel.

Bloomberg, owner of Bloomberg News wire service and business news channel Bloomberg TV, killed speculation by saying it wasn’t interested.

Murdoch indicated Tuesday that he might want to broaden the Journal’s international reach by teaming it with some of News Corp.’s far-flung operations. Interviewed on Fox News on Tuesday afternoon, Murdoch said of Dow Jones: “It’s got great journalists, it’s got great management. But it’s got rather a confined capital. It needs to be part of a bigger organization to be taken further.”

However, Murdoch’s bid drew opposition from members of the Bancroft family, which has controlled the paper since 1902. In a statement shortly before the stock market close, Dow Jones said family members holding “slightly more than 50%” of the voting power in the company’s stock would oppose the transaction. It was unclear whether those family members thought the price was too low or were opposed to a sale on any terms. Also, because the Bancrofts hold 64% of the voting power, the statement hinted at dissension within the family.

The family owns about 25% of outstanding shares but controls Dow Jones through a super-voting class of stock. Similar dual-class share plans protect family control at New York Times Co. and Washington Post Co.

A lawyer representing the Bancrofts declined to comment further.

Dow Jones said its board was evaluating the bid and would factor in the family’s views.

Murdoch, who presented his offer two weeks ago, said he had not had direct contact with family members but expected to meet with them within two or three weeks.

As to the Bancrofts’ opposition, he said: “I think that we were hearing last week that the winds were blowing against us, then we heard that they decided to pursue it. I think, frankly, I don’t know whether the whole family has been consulted yet. But there is plenty of time.”

Word of the family’s reaction did little to chill the enthusiasm on Wall Street, where Dow Jones shares had exploded in late-morning trading after the Murdoch bid was first reported by CNBC. The price dipped in late trading after the Bancroft announcement, but the shares still climbed $19.87, or 55%, to $56.20 -- the highest closing price for Dow Jones since 2002.

Investors celebrate

Dow Jones shareholders were ebullient.

“We are patient investors. Our patience was being tried, and we prevailed,” said Mark Boyar, president of Boyar Asset Management, a New York firm with nearly 200,000 Dow Jones shares.

Boyar said that even if the Bancrofts didn’t want to sell, they would have to take a good look. He said Murdoch would probably be willing to raise his bid if necessary, a sentiment echoed by a former News Corp. executive who had discussed bidding for Dow Jones with the media mogul last year.

“It is just the beginning,” Boyar said. “This is a trophy property; it’s just been mismanaged for decades.” He mentioned blunders such as the company’s ill-fated purchase of Telerate, which provided market data, and its premature sale of cable property.

Tuesday’s Dow Jones stock surge contrasted sharply with recent events at other newspaper publishing companies. Tribune Co., parent of the Los Angeles Times, held a six-month auction that resulted in its agreement last month to be taken private at $34 a share.

That was about a 15% premium over where the stock had been trading just before the announcement, but it was well below the mid-$40s range claimed as the stock’s true value last summer when dissident shareholders forced the auction. Last year Knight Ridder Inc., then the nation’s second-largest newspaper company, was sold to McClatchy Co. after a similarly lackluster auction.

Dean Singleton, whose MediaNews Group Inc. has continued to buy newspapers even as the industry loses circulation, said Murdoch’s bid didn’t mean that the investor distaste for papers was at an end.

With roughly half of its operating profit coming from online operations, Dow Jones “has crossed the bridge to new media much faster than the rest of us have,” Singleton said. “If you believe in the digital future, they would be an outstanding buy.”

An investment banker following the process predicted that New York Times Co. and Washington Post Co. would look at Dow Jones but fail to act. “At this kind of valuation, it’s a big bite,” he said.

Neither is General Electric likely to make a counter-bid, people tracking the matter said.

“GE is not going into more legacy media,” said Scott N. Flanders, chief executive of Freedom Communications Inc., publisher of the Orange County Register. “If anything, there’s more talk about their selling NBC.”

Besides, CNBC has a contract through 2012 under which it pays an annual fee for Dow Jones to supply content to it exclusively. The contract remains binding even in the event of a takeover, according to sources close to GE.

But the CNBC contract isn’t a deal breaker for News Corp. because “Murdoch is a real long-term planner,” said cable industry analyst Derek Baine of Kagan Research.

Even without Wall Street Journal content, the Fox business channel is expected to launch with 30 million subscribers, and that should climb to 54 million by 2009, Baine said. Although CNBC has about 80 million subscribers, it has less than half the ratings it enjoyed before the dot-com bubble burst, even after improvements in 2005 and 2006.

Inside the Journal, some reporters expressed horror at the idea of being owned by a press lord known more for his sensationalistic tabloids and right-leaning politics than for sober properties like the Times of London.

“In one word, panic,” one Journal staffer said of the reaction. “People are terrified at the prospect of Rupert Murdoch owning this newspaper.” The staffer declined to be identified for fear of job repercussions.

The union representing Journal writers said it was opposed to the transaction, which Murdoch attributed to fear of change. He said he didn’t anticipate significant clashes if the deal went through.

Rocky relationships

Murdoch’s history with other prestigious media outlets has not been a smooth one. Editor Harold Evans famously feuded with Murdoch in the early 1980s, after the magnate took over the Times of London.

In his book about the new owner, “Good Times, Bad Times,” Evans said Murdoch broke promises to maintain the venerable newspaper’s staff, quality and editorial independence. He said Murdoch could not distinguish news from entertainment and blamed the mogul’s blind pursuit of commercial success for the Sunday Times’ much-maligned publication of bogus “Hitler Diaries.”

Current and former News Corp. executives said the bid for Dow Jones had been under consideration for years and remained controversial internally. The biggest fear, they said, was a drop in the News Corp. share price as the company turned toward out-of-favor “old media.”

News Corp. stock fell $1.01 to $22.99 on Tuesday. It had been around $24.50 before word of a possible bid began circulating in recent days.

Some News Corp. investors were disappointed with the bid, saying they didn’t understand how Dow Jones could be worth so much with the earnings it has.

“It’s going to reignite everyone’s concerns about Rupert being an empire builder,” said one significant investor, who asked not to be named to preserve his access to News Corp. insiders. “Sixty is completely unjustified. They’re going to have to show some really good, tangible ideas above and beyond the business news channel.”

In addition to the firepower it would give Murdoch’s budding cable channel, Dow Jones would give the maverick online expertise to extend to the newspapers he owns, which are mostly in Australia and Britain. “It could transform all his newspapers on the Web,” a former executive said. “They’ve got some learning to do.”

News Corp. insiders said Murdoch might put his top newspaper executive in Britain, Les Hinton, in charge of the Journal and other Dow Jones properties. Hinton is a late but enthusiastic convert to having a significant newspaper presence on the Internet.

A “wild card,” as one former executive put it, is whether Murdoch’s son James would take a major role as well, perhaps in a group that includes the Journal and the money-losing New York Post. James Murdoch has been running News Corp.’s BSkyB satellite TV business in London but recently bought a New York apartment, according to one News Corp. executive.

His older brother, Lachlan, had headed the U.S. publishing division but left the firm in 2005 after a falling-out with his father.

Commenting on Murdoch’s long-noted tendency to pay big prices for things he wants, a Journal staffer said: “If he’s ever going to overpay for something, the Wall Street Journal is a pretty good brand name to overpay for.”

thomas.mulligan@latimes.com

joseph.menn@latimes.com

Times staff writers Jim Puzzanghera in Washington and James Rainey in Los Angeles contributed to this report.

(BEGIN TEXT OF INFOBOX)

Company profiles

Dow Jones & Co.

Founded: 1882

Headquarters: New York

Chief executive: Richard F. Zannino

Employees: 7,400

Publications: Wall Street Journal (U.S., Europe and Asia editions), Barron’s magazine, Far Eastern Economic Review, 34 small daily and weekly newspapers

Online: WSJ.com, Market Watch.com, Barrons.com

Other holdings: Dow Jones Newswires, Factiva (newspaper and magazine archives)

News Corp.

Founded: 1979

Headquarters: New York

Chief executive: Rupert Murdoch

Employees: 47,300

Movie studios: 20th Century Fox, Blue Sky Studios, Fox Searchlight Pictures

Broadcast TV: Fox Broadcasting (U.S.); 35 U.S. local stations, including KTTV Channel 11 and KCOP Channel 13 in Los Angeles

Cable TV: Fox News Channel, Fox Sports Net, FX, Fox Movie Channel, National Geographic Channel

Satellite TV: BSkyB, Sky Italia, Star TV (Asia)

Publications: 175 newspapers in the United States, Britain, Australia, Fiji and Papua New Guinea, including the New York Post and London Times