Dow Jones Will Sell, But Not to Potter!
Events last week have likely brought Dow Jones closer to sale, but Wall Street Greek does not think closer to Murdoch. Last week, Dow Jones & Co. (DJ) reported that it would place bargaining power in the hands of its Board of Directors. In other words, to avoid complications and miscommunication, the Board will represent the one voice of the company. According to DJ, this move does not signify a company plan to sell. The Bancrofts are represented on the Board, and beneficial owners have probably well communicated their hopes to the Board. Also, at the end of the day, it’s going to take the Bancroft family shares to consummate the sale.
Meanwhile, last Wednesday evening, after the close of trading, MySpace Founder Brad Greenspan announced that a group led by him was offering Dow Jones & Co. an opportunity to liquidate a minority 25% stake in exchange for approximately $60 a share, through Dutch Auction. Mr. Greenspan's group believes it can create significant value for DJ with the cash infusion, as it would put it to use in expanding DJ's online presence and in implementing new digital strategies. The group would also require two seats on DJ's Board in order to better insure it could implement its plan.
The Greenspan offer is not completely unattractive to Dow, since the company is already somewhat levered. In other words, taking on too much more debt may not be a great option for a publishing, despite its still cash flow positive status. So, if DJ wanted to implement a new intensive digital strategy, it would be easier to do so with Greenspan’s capital. Still, if you’re an owner, $60 is probably going to be less than you can get somewhere else at the end of the day.
The Bancrofts are not unattached owners, in our view. The family has already expressed concerns about losing the integrity of the publications if it were to sell to the wrong buyer (Read Murdoch). That’s a clear indicator of an owner that has a greater interest than getting the best dollar offer. In other words, in the eyes of the Bancrofts, selling to Murdoch would be analogous to George Bailey selling out to Potter in "It’s a Wonderful Life." We think the recent effort by DJ in providing a plan to insure the editorial integrity of The Wall Street Journal and Barron’s does a lot in creating bargaining leverage, and maybe not as much to insure sale to Murdoch as it appears on the surface.
If the public views a Murdoch deal as unlikely, than DJ may be limited in what it can fetch for the firm. It is in the Bancroft's interests to keep the door open to Murdoch on the face of things. This plan essentially says, the potential for dealing with Murdoch is still viable, so offer us $60 bucks or more. I think you see my point...
Here’s where human nature comes to play...
When you compete against someone, whether in media or in total wealth, like for instance Rupert Murdoch, then selling to that competitor can leave a bitter taste. I’m totally guessing here, since that kind of wealth is just something I pass on my way to Central Park. Still, this is where art impacts the science of the deal. So, while Greenspan’s first offer may not quite seal the deal, he may have the winning cards in his hand. However, I continue to believe a new suitor is very likely to come to fore, which is a good thing for valuation.
This is a staple American asset for sale, and if the crème of society is willing to pay up for art and antiques, then they’re willing to pay up for Dow Jones. News Corps.’ (NWS) best offer on the table at $60 is probably not even competitive with the Greenspan offer, since the Bancrofts would not have to give up control. Still, on a what seems like daily basis, new suitors are coming to the table, despite the withdrawal of interest from General Electric (NYSE: GE) and Pearson Plc. Wall Street Greek believes General Electric offers a nice fit for DJ, with its CNBC brand, and GE is probably not out of the running quite yet. Also, LA billionaire Ron Burkle is rumored to be assembling a group to buy the company, which may include an employee-based interest. In the wings, the Philadelphia Inquirer’s owner, Philadelphia Media Holdings along with its partners may still emerge with a deal. It seems clear to us that Murdoch or someone is going to have to raise the stakes if they really want Dow Jones.
In times like these, valuation takes on a different flavor. Investors look at the asset and the brand, and in Greenspan’s view, the value that can be created through better online leveraging of the DJ brands. Just because Internet is replacing hard copy reading, does not mean the Wall Street Journal is worth the same as my blog for instance, Wall Street Greek. Though it certainly improves my distribution competitiveness. You see what I mean, there are respected brands there in Barron’s and the Journal for instance, that are always going to be viewed as legitimate sources of financial news and opinion. You don’t lose that kind of value overnight to the “Wall Street Greeks” of the world, however excellent my content may be (cheap plug).
In our view, Dow Jones is going to sell, but to a buyer the firm views sensitive to its editorial integrity, and the Bancrofts don’t seem to view Murdoch in that light. Still, they have Murdoch to thank for the opportunity before them, which includes either the intensification of online effort and creation of value while retaining ownership control or cashing out.
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Meanwhile, last Wednesday evening, after the close of trading, MySpace Founder Brad Greenspan announced that a group led by him was offering Dow Jones & Co. an opportunity to liquidate a minority 25% stake in exchange for approximately $60 a share, through Dutch Auction. Mr. Greenspan's group believes it can create significant value for DJ with the cash infusion, as it would put it to use in expanding DJ's online presence and in implementing new digital strategies. The group would also require two seats on DJ's Board in order to better insure it could implement its plan.
The Greenspan offer is not completely unattractive to Dow, since the company is already somewhat levered. In other words, taking on too much more debt may not be a great option for a publishing, despite its still cash flow positive status. So, if DJ wanted to implement a new intensive digital strategy, it would be easier to do so with Greenspan’s capital. Still, if you’re an owner, $60 is probably going to be less than you can get somewhere else at the end of the day.
The Bancrofts are not unattached owners, in our view. The family has already expressed concerns about losing the integrity of the publications if it were to sell to the wrong buyer (Read Murdoch). That’s a clear indicator of an owner that has a greater interest than getting the best dollar offer. In other words, in the eyes of the Bancrofts, selling to Murdoch would be analogous to George Bailey selling out to Potter in "It’s a Wonderful Life." We think the recent effort by DJ in providing a plan to insure the editorial integrity of The Wall Street Journal and Barron’s does a lot in creating bargaining leverage, and maybe not as much to insure sale to Murdoch as it appears on the surface.
If the public views a Murdoch deal as unlikely, than DJ may be limited in what it can fetch for the firm. It is in the Bancroft's interests to keep the door open to Murdoch on the face of things. This plan essentially says, the potential for dealing with Murdoch is still viable, so offer us $60 bucks or more. I think you see my point...
Here’s where human nature comes to play...
When you compete against someone, whether in media or in total wealth, like for instance Rupert Murdoch, then selling to that competitor can leave a bitter taste. I’m totally guessing here, since that kind of wealth is just something I pass on my way to Central Park. Still, this is where art impacts the science of the deal. So, while Greenspan’s first offer may not quite seal the deal, he may have the winning cards in his hand. However, I continue to believe a new suitor is very likely to come to fore, which is a good thing for valuation.
This is a staple American asset for sale, and if the crème of society is willing to pay up for art and antiques, then they’re willing to pay up for Dow Jones. News Corps.’ (NWS) best offer on the table at $60 is probably not even competitive with the Greenspan offer, since the Bancrofts would not have to give up control. Still, on a what seems like daily basis, new suitors are coming to the table, despite the withdrawal of interest from General Electric (NYSE: GE) and Pearson Plc. Wall Street Greek believes General Electric offers a nice fit for DJ, with its CNBC brand, and GE is probably not out of the running quite yet. Also, LA billionaire Ron Burkle is rumored to be assembling a group to buy the company, which may include an employee-based interest. In the wings, the Philadelphia Inquirer’s owner, Philadelphia Media Holdings along with its partners may still emerge with a deal. It seems clear to us that Murdoch or someone is going to have to raise the stakes if they really want Dow Jones.
In times like these, valuation takes on a different flavor. Investors look at the asset and the brand, and in Greenspan’s view, the value that can be created through better online leveraging of the DJ brands. Just because Internet is replacing hard copy reading, does not mean the Wall Street Journal is worth the same as my blog for instance, Wall Street Greek. Though it certainly improves my distribution competitiveness. You see what I mean, there are respected brands there in Barron’s and the Journal for instance, that are always going to be viewed as legitimate sources of financial news and opinion. You don’t lose that kind of value overnight to the “Wall Street Greeks” of the world, however excellent my content may be (cheap plug).
In our view, Dow Jones is going to sell, but to a buyer the firm views sensitive to its editorial integrity, and the Bancrofts don’t seem to view Murdoch in that light. Still, they have Murdoch to thank for the opportunity before them, which includes either the intensification of online effort and creation of value while retaining ownership control or cashing out.
Receive Wall Street Greek via email by subscribing here. If you change your mind, it's easy to unsubscribe. We respect your privacy and will not share your information with any third party. (disclosure)
posted by The Greek | 10:53 AM
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