After an 11-week courtship, it appears thatchief Rupert Murdoch has finally persuaded Wall Street Journal parent to accept his $5 billion buyout proposal.
Dow Jones' board will vote on the deal tonight, according to The Journal, and the Bancroft family, which controls 64% of the voting shares in Dow Jones, will meet Thursday to hear details of the agreement.
Although it is too close to call whether the family will ratify the deal, Wall Street, which has been buzzing for weeks over whether Murdoch's aggressive offer was ingenious or insane, has warmed to the deal in recent days.
In the weeks since Murdoch first offered $5 billion, or $60 per share, on May 1, Dow Jones' stock has soared 55% while shares of News Corp. have slipped 1.5%. But over the past two weeks, as a deal has seemed imminent, News Corp.'s stock began to rise, climbing 4%. A critical mass of Wall Street observers is coming to believe that the deal is another savvy move for Murdoch.
"He's a visionary," Benchmark analyst Edward Atorino said. "When he started the Fox Network, everyone pooh-poohed it. Nobody thought he could do it. He spent lots of money to build it into a major powerhouse."
Shares of News Corp. rose 62 cents today to close at $24.25, a 2.6% gain. Shares of Dow Jones lost 50 cents and ended the session at $56.45, below Murdoch's offer price, an indication that not all investors think the deal is a sure thing.
Coming aroundThough the marriage between a multimedia giant like News Corp. and an old-school newspaper business like Dow Jones did not sit well at first for Standard & Poor's analyst Tuna Amobi, he said that after parsing the details, it began to make sense.
"When the news first broke about the deal, we downgraded News Corp. because the announcement was unexpected, and we couldn't see how the newspaper biz fit into NWS' overall growth strategy," Amobi explained. "As the weeks went by, we got more information about the deal, and we raised our recommendation back to 'buy' from 'hold.'"
Unlike struggling newspaper publishers such asand , which rely mainly on print operations, Dow Jones generates 40% of its revenue from its online businesses. "Dow Jones is a different breed than traditional newspaper companies," Amobi pointed out.
Murdoch has said that his overall strategy is to leverage the Wall Street Journal brand across all of News Corp.'s assets. "We've got to lift our game tremendously," he told Time magazine last month. "We'll sell our business news and information in print, we'll sell it to anyone who's got a cable system and we'll sell it on the Web."
"Is he paying too much? Possibly," Jon Fine, media reporter for BusinessWeek, told CNBC in early July. "But he is the one guy that can do this. He has figured out what to do with media companies that others haven't."
One reason for the long courtship: Dow Jones' controlling Bancroft family has been hesitant to hand The Journal to Murdoch, fearing the newspaper would lose its editorial independence. But the family needed Murdoch more than it realized, according to Benchmark analyst Atorino.
"The Bancrofts don't get it," Atorino said in an interview in late June. "The Wall Street Journal is in trouble. Murdoch is saving it."
"Without this deal, Dow Jones has some real problems," he added. "Advertising has been pretty terrible. Murdoch is going to invest in this company; he's going to make it bigger and better."
Shareholder skepticismFor investors, the pricey deal raises questions about whether it's time to load up on News Corp. shares or run screaming for the exits.
Not everyone is sure Dow Jones makes business sense for News Corp. shareholders. It "may be part of his strategy, but it doesn't also mean it's not an ego thing," said Eleanor Bloxham, the founder and president of The Value Alliance, a corporate governance company.
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Another analyst thinks it would be a good move for investors.
"I think that, as an investor, when you're handing your capital over to someone else to make something happen with it, Murdoch is a good manager, leader, entrepreneur to do that," UBS analyst Mike Morris said. In the past three years, UBS has received compensation from News Corp. for investment banking services.
"In the first year, you're going to have some dilutive impact," Morris said, noting that it is difficult to make big mergers accretive right away. "That said, it could be value-accretive over time. The Dow Jones brand and the Wall Street Journal name are scarce assets that could be better-monetized by multiple platforms and multiple markets," Morris said.
Shares of News Corp. have been trading in the $19-$25 range over the past year, well below the stock's 10-year high of $55.62, set in 2000.
No white knightsMurdoch's offer was both generous and strategic: Although several other parties had considered making an offer for Dow Jones, the price tag prevented anyone from making a serious move.
Dow Jones shares closed Monday at $56.95. When Murdoch made his $60 offer, they were trading at $36.33.
The stock took a hit during the dot-com bust, after technology companies slashed their advertising budgets, and had struggled before Murdoch came along.
The Dow Jones directors met with supermarket magnate Ron Burkle and MySpace founder Brad Greenspan on July 10, both of whom had separately expressed an interest in the newspaper company. The meetings, an effort to mollify the Bancroft family, were a last-ditch effort by the Bancrofts to find other bidders.
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Christopher Bancroft even attempted to accumulate enough voting shares himself to prevent a Murdoch takeover.
"Certain members of the family insist on exploring every option before making a decision, but I think it's pretty unlikely" that any other bidder will succeed Murdoch, Morris stated.
Former Dow Jones CEO Peter Kann, who stepped down in early 2006 (and left the chairman's seat in April), prefers Murdoch as an acquirer.
"If the family is going to sell I see no point in pursuing industrial conglomerates, Internet entrepreneurs, supermarket magnates and real estate developers," Kann wrote in an e-mail to The Wall Street Journal. "None know anything at all about journalism. As to Mr. Murdoch, at least he loves newspapers, presumably would invest in the WSJ and Dow Jones, and would seem to have little incentive to tarnish a trophy he has coveted for so long."
and , MSN Money's publisher, had talked about a potential offer, but those talks ended weeks ago. GE then tried to team up with Pearson, which publishes the Financial Times, but both companies decided to instead focus on cooperation agreements between GE's CNBC and the Times.