News Corp is seeking to buy Wall Street Journal publisher Dow Jones & Co Inc for about $5 billion, in a deal that would make media mogul Rupert Murdoch a major player in global financial news.
Dow Jones said on Tuesday its board of directors and trustees of the controlling Bancroft family are evaluating the unsolicited $60-a-share bid, a 65 per cent premium to its closing price on Monday.
News Corp, which made the offer a few days ahead of Dow Jones' April 18 annual shareholders meeting, called the proposal a "friendly" offer.
The deal places Dow Jones' enterprise value - its market value plus debt minus cash - at a lofty 15 times estimated 2007 earnings before interest, taxes, depreciation and amortization, well ahead of the newspaper group's average 8 to 10 times valuation, Benchmark Co analyst Ed Atorino said.
The news pushed up Dow Jones shares by more than 50 percent and sparked a rally in other publishers and financial newswires. News Corp shares fell more than 4 per cent as analysts said more exposure to the slow-growing newspaper industry would weigh on company financials.
The "strategic rationale, which, while dilutive, solidifies a new growth driver for News Corp," Richard Greenfield, analyst at Pali Capital said. "It would create a multiplatform business news giant spanning online, print and television."
Sanford C Bernstein analyst Michael Nathanson said the financial cost to News Corp would not be "overly severe," and could dilute fiscal 2008 earnings by 1.6 per cent to 6.2 per cent excluding any cost cuts.
Murdoch's move turns up the heat in a newspaper market that has been in the crosshairs of dealmakers.
Dow Jones belongs to a class of family-controlled papers that have so far rebuffed shareholder efforts to reconsider their ownership structure even as other publishers including Tribune Co and Knight Ridder have gone private or sold key assets.
For Dow Jones, the big price premium offered by News Corp amounts to a "knockout punch," one Dow Jones investor said.
"It will be hard for the Bancroft family to say no even though legally they have the option of doing so," First Eagle Global Fund's Jean-Marie Eveillard, said. "I think investors who own the shares will be almost unanimous in saying this is a price they cannot refuse." First Eagle fund owns Dow Jones shares.
Analysts and media reports speculated that Murdoch's offer, while high, could prompt other bidders to emerge, such as Bloomberg, the Washington Post or New York Times. Bloomberg said there was "no truth" to the speculation. The two newspaper publishers declined comment.
"If someone is willing to pay $6 billion for the company, why wouldn't someone else want to bay $8 billion," said Mark Boyar, whose Boyar Value fund owns roughly 200,000 Dow Jones shares.
"This has been a very poorly managed business and we always thought that Rupert Murdoch would be one of three or four people who should own it," he added. "There is a possibility that the Bancroft family would go to someone like Warren Buffett and ask quietly to be bought at a higher price."
Owning Dow Jones would give Murdoch expensive, but powerful financial news clout backed by the venerable Wall Street Journal brand ahead of his planned fourth-quarter launch of a business news cable channel.
Dow Jones could provide the new Fox Business Channel with a steady stream of real-time news from Dow Jones Newswires, a growing Internet presence, and analysis from Wall Street Journal and Barron's reporters.
But benefits to Murdoch's new business channel could be a long way off as Dow Jones has a contract with top-rated CNBC that runs until 2012. It was not immediately clear if, or how, the contract could be broken.
Longer term, the 76-year-old Murdoch, who built a global media empire from a small newspaper business in Australia, aims to replicate the success News Corp. has had with its Fox News, which remains the top rated cable news channel.
"This gives him instant credibility, instant content, instant brand name," Atorino said.
A Dow Jones purchase would dent General Electric -owned CNBC cable business news network's leading position in cable television business news, one News Corp investor said.
"CNBC relies very heavily on the Wall Street Journal," said the investor, Larry Haver, associate portfolio manager at Gamco. "This is a shot at the bell against CNBC."
CNBC reported the bid earlier on Wednesday. GE had no comment.
News Corp's bid is for all shares outstanding of Dow Jones common stock and Class B stock in cash, or in a combination of cash and News Corp stock, Dow Jones said.
(Additional reporting by Svea Herbts and Scott Malone in Boston, and Megan Davies, Robert Macmillan, Michele Gershberg, Paul Thomasch in New York)