A special committee of Dow Jones (DJ) board has come to terms with Rupert Murdoch. The entire DJ board is likely to approve that as early as today. Then, it goes to the founding Bancroft family for consideration. The Wall Street Journal put it this way: "Mr. Zannino (DJ CEO) has indicated to News Corp. that the family’s position on the deal is too close to call, according to a person who spoke to him."
That means that there is still a reasonable chance that Dow Jones will not be sold.
If the company remain independent, the disappointment would probably send shares to a level below where they traded before the offer, perhaps as low as $30. And, shareholders would likely sue the family for rejecting the offer. Plaintiffs might not have much of a case. It has always been clear that voting control of the company sits with the Bancrofts, but the suits could be a distraction.
The most important aspect of a rejection of Murdoch’s offer is that DJ management would have to present a plan to get the company’s share price rising rapidly. In the last quarter, the company had operating income of $38 million on revenue of $507 million.
It is hard to imagine that the company would keep its local media business, the Ottaway newspaper chain. It had revenue of $55 million in the most recent quarter and operating income of $5 million. Based on public company comparables it could certainly be sold of $225 million or more.
And, costs would have to come way down in consumer media. That segment of the company is mostly made up of The Wall Street Journal. DJ would have several options, but expenses for this part of the firm would certainly have to drop by $25 million per annum for its margin to be decent. That assumes that revenue stays flat.
Cutting costs at the Journal would probably involve cutting jobs or getting employees to work for less. It would also almost certainly require moving more readers to an internet platform to save money in paper and production.
Dow Jones might also go for the long ball and buy the FT from Pearson (PSO). There have been some indications that the paper could be sold for $1.3 billion. Pearson is now primarily in the education publishing business. Combining the FT and WSJ would offer both properties significant savings in news, sales, and production costs.
Rejecting Murdoch would be ugly for shareholders, but it might not be the end of the line for the share price.
Douglas A. McIntyre can be reached at [email protected].
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