Lost in most of the discussion about the News Corp (NWS) offer to buy Dow Jones (DJ) for $5 billion is the fact that it is virtually certain that Mr. Murdoch can never get his investment back. His offer is almost a 70% premium to where Dow Jones has traded recently. The price also makes it a sure thing that no other public company will enter a bid, no matter how attractive it may be to own The Wall Street Journal and its sister properties.
Dow Jones had revenue of almost $1.8 billion last year. Operating income was $105 million, below where it was in both 2003 and 2004, and up very little from 2005. Net cash provided by operating activities has averaged about $150 million per annum over the last five years.
Many of the Dow Jones properties are not terribly healthy. After watching its ad lineage drop 18% in 2002, The Wall Street Journal ad volume has been little better than flat. Dow Jones Newswire terminals are actually down over that period from 308,000 in 2002 to 298,000 in 2006.
The Wall Street Journal online has done well, but its total subscriptions have only grown 19% from 2002 to 2006, rising from 679,000 to 811,000. Paid circulation at The Wall Street Journal has been flat.
Assuming that News Corp has to pay 6% for the $5 million in cash that it is offering, Dow Jones would have to throw off $300 million just to cover the interest. The principal would never be paid. Over the last five years, Dow Jones best operating income figure was $135 million in 2003. Net cash from operations that year was $234 million. Even if News Corp uses cash on hand, it would make a better return almost anywhere else.
Murdoch can buy Dow Jones. It is a bad financial deal for News Corp shareholders, but he has enough voting shares in the company so that he does not have to ask permission. But, at other possible bidders from The New York Times (NYT) to Reuters (RTRSY) where management would have to ask, the answer would be no. The price is too high.
Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.
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