[29 May 2007]
McClatchy-Tribune News Service (MCT)
Many an executive’s career has been derailed by the acidic pen of the New York Post’s gossip column, Page Six. Rupert Murdoch, owner of the Post’s parent company, probably never expected that the ink would spill on him and affect his bid for Dow Jones & Co.
I originally bought the stock of Dow Jones, owner of the Wall Street Journal, because I like out-of-favor stocks. There is a saying on Wall Street that every dog has its day. Right now, media stocks are firmly in the doghouse.
All the free and up-to-the-minute information that is available on the Internet has called into question the very survival of newspapers. The next morning is too late for most people, like me, who are addicted to the 24/7 news cycle. The Wall Street Journal is the rare newspaper that has been able to continue to charge for its Internet content.
Rupert Murdoch made an all-cash $60 bid for the most august name in journalism - the Wall Street Journal. The sheer audacity of it took my breath away. When news of the bid somehow leaked on May 1, Dow Jones stock skyrocketed to over $58 a share. It had closed the previous day at $36.25. Rupert Murdoch was offering a staggering 66 percent premium over the closing price.
I sold immediately on May 1. If the merger did not go through, the stock would fall back toward its previous price of $36. At a current price of $58 with a $60 bid, the stock did not have much upside. There is also a value to receiving the money now rather than waiting for the deal to be completed in a month or two. Of course, if Murdoch raised his bid, I would have left even more money on the table by selling early.
One of the hardest jobs of a full time money manager is wearing the hat of the merger arbitrageur for the day. The reasons that I buy a stock rarely translate into why it becomes an acquisition candidate.
Except in rare instances, the logic behind the synergies and cost savings of the merger usually escapes me and the estimates of the benefits of the merger seem wildly exaggerated. This makes it harder to discern if the merger will be completed or if the dollar amount of the bid will be raised.
In this case, I had absolutely no doubt that the merger would not happen. The Boston Brahmins that control a majority of Dow Jones through super-voting class B stock would sooner host another tea party than sell to the king of yellow journalism.
Judging by a price north of $50 a share, most of Wall Street disagrees with me and thinks that a merger will happen. In this particular case, I am not sure that Wall Street is making a correct assessment.
Many on Wall Street, myself included, are arrivistes motivated only by money. We have chosen to push paper around for a living instead of curing the sick or defending the poor. Therefore, we cannot imagine a situation where someone would walk away from a chance to double an investment.
I am sure that the Bancroft family, who control 60 percent of Dow Jones voting power, and the Ottaway clan, who own 6.2 percent of the super-voting shares, are fond of money as much as the rest of us. In light of Murdoch’s offer, it would not surprise me if they later sold out to someone else or accepted an infusion of cash from private equity.
But they are not going to sell out to Rupert Murdoch, widely regarded as an entrepreneur in the field of journalism but not a journalist with blue ink in his blood. After zealously guarding their public trust for 100 years, they are not going to shed their responsibilities without careful consideration.
If the older generation of the families were vulnerable to second thoughts, a Page Six report in the New York Post on May 18 provided fuel. In the item, the column’s editor confessed to taking money from a subject, one of the high sins of journalism. The real news came in allegations made by a former Page Six freelancer in a lawsuit filed against the Post. The lawsuit contends that Murdoch killed a book by his HarperCollins imprint authored by the former governor of Hong Kong, Chris Patten, and even worse, pushed the publication of a “stunningly awful hagiography” by the daughter of the head of the Communist Party. Murdoch allegedly did this for the benefit of his business interests in China. Opening up the Chinese government has been a business priority of the Wall Street Journal and its founding families for years.
Why did Rupert Murdoch risk the humiliation of having his bid completely ignored? Since he is planning to launch a business news channel, he needs to neutralize the Dow Jones contribution to his archrival, CNBC.
My prediction: Murdoch will walk away from this deal with something. Dow Jones will agree to negotiate with his new channel when their contract with CNBC is up.
(Laura Goldman worked on Wall Street for more than 20 years for such firms as Merrill Lynch and UBS Warburg. She now runs her own investment advisory, LSG Capital, from Tel Aviv, Israel.)