Offer for Dow briefly lifts newspaper stocks
The beleaguered newspaper industry saw its stocks surge briefly Tuesday on news that media titan Rupert Murdoch had offered a large premium for Dow Jones & Co. But the settling of share prices by day’s end seemed to agree with the assessment of the experts: Most newspaper companies are not like the one that owns the Wall Street Journal.
“With all due respect to all the other newspaper companies,” said Alan D. Mutter, a San Francisco-based analyst and newspaper investor, “this is a unique asset with unique strategic value to a buyer who has the means and the willingness to, in essence, pay more than the intrinsic value.”
William Dean Singleton, chief executive of privately held newspaper chain MediaNews Group, said mainstream newspaper companies were only “a distant cousin” to Dow Jones.
“Most of us in our business believe the online future is very bright and there are a lot of signs of that,” Singleton said. “But the online success of Dow Jones is in the present.”
Although most newspapers give away their online content, the Wall Street Journal has a robust 800,000 paying subscribers to its website.
Dow Jones’ database and search firm, Factiva, has been another winning play. It got much of the credit last month when the company reported an 18% increase in sales to $507.2 million in the most recent quarter. That helped the company beat earnings estimates, despite a 1.8% decline in the Journal’s advertising revenue.
Investors appeared to agree, as the day ended with newspaper stocks giving back much of the substantial gains they made when news of the offer by Murdoch’s News Corp. broke Tuesday morning.
Industry giant Gannett Co., publisher of USA Today, traded as high as $61.68, then ended at $58.17, up $1.11. The second-largest publisher by circulation, McClatchy Co. of Sacramento, rose as high as $34.32 but finished at $29.48, up 58 cents. New York Times Co. gained $1.18 to $24.58 after trading as high as $26.40. Tribune Co., owner of the Los Angeles Times, was unchanged at $32.80 after rising to $33.14.
Tribune agreed in early April to sell the company to real estate mogul Sam Zell for $34 a share.
Competitors and analysts said Murdoch was willing to pay 65% above Dow Jones’ Monday closing price to create strategic alliances with his other news operations.
A prime beneficiary could be the Fox Business Channel, which News Corp. plans to launch this summer.
Some critics had questioned the need for another competitor in a field dominated by CNBC. But the ability to use stories and feature reporters from the Wall Street Journal would give the Fox Business Channel instant cachet and market share, said Porter Bibb, managing partner at Mediatech Capital Partners.
The Wall Street Journal currently is under contract to provide news to CNBC. If that contract can be overcome, “it not only shores up Murdoch’s financial news channel but puts the poker to its rival CNBC,” Bibb said.
Murdoch’s $60-a-share offer represents a premium of about 19 times Dow Jones’ pretax earnings for the year just ended, according to analyst Mutter’s calculations. That’s nearly double the rate at which publicly owned newspaper stocks have been trading.
Zell might have felt lonely in his recent successful bid for Tribune and his professed enthusiasm for the newspaper business.
Bill Pate, managing director of Zell’s Equity Group Investments, said Murdoch’s offer gave newspaper proponents a bit of good news.
“We pride ourselves on being contrarian,” Pate said, “but it’s nice to see that someone else is a contrarian too.”
