News Corp. bid suggests vast terrain for media takeovers

Dale Kasler
McClatchy Newspapers (MCT)

SACRAMENTO, Calif. - Rupert Murdoch's surprising offer for Dow Jones & Co. suggests that practically every newspaper publisher in America is vulnerable to a takeover bid, no matter what the company has done to protect itself.

Dow Jones, parent of the Wall Street Journal, said Tuesday that members of the Bancroft family representing just over half of the company's voting power are opposed to the $5 billion bid by Murdoch's News Corp., even though it represents a whopping 67 percent premium to Dow Jones' recent stock price.

Dow Jones operates under a two-tier stock structure that gives the Bancrofts effective control. Several other newspaper publishers have similar protections, including The McClatchy Co. of Sacramento, the third-largest U.S. chain, as well as New York Times Co. and Washington Post Co.

But two-tier structures may not be protection enough in a time of turmoil in the newspaper business. The News Corp. offer is so lucrative it could eventually win over family members who control Dow Jones. What's more, non-family shareholders could argue in court that the company has a fiduciary responsibility to accept such a high bid.

With stock prices sluggish, and advertising and circulation revenue migrating to the Internet and media, publicly held newspaper companies are finding it harder to maintain their independence.

Two newspaper giants that lacked the protective two-tier structure have been sold in the past year under pressure from disgruntled shareholders. Knight Ridder Inc. was sold to McClatchy last year for $6 billion, including debt assumption. Tribune Co. of Chicago, the second-largest chain, has agreed to be sold to real estate tycoon Sam Zell in a complicated deal worth $8.2 billion.

Dow Jones said family members constituting "slightly more" than half the company's voting power are opposed to the Murdoch bid. Despite their control, the Bancrofts won't be able to simply ignore the unsolicited offer from News Corp., which was made two weeks ago but wasn't disclosed until Tuesday.

Because the offer is such a huge premium, the News Corp. bid "inevitably would result in an enormous amount of pressure" on the Bancroft family, said Gary Pruitt, chairman and chief executive of McClatchy.

But he said Dow Jones' predicament doesn't mean McClatchy, which owns 31 daily newspapers including The Sacramento Bee and The Miami Herald and has watched its stock price falter over the past year, is in the same boat.

"I don't think this significantly increases the chances of an unsolicited bid for McClatchy," Pruitt said. "It's possible, but I think it's unlikely."

McClatchy has said it wants to remain independent and has lauded its two-tier structure as something of a buffer against day-to-day pressures from Wall Street. The McClatchy family owns about 32 percent of the company but controls about 83 percent of the voting power.

Dow Jones recently reported a 71 percent increase in quarterly profits, not counting one-time items. But the company's stock has been treading water as investors became disenchanted with the business of newspapering. It had closed Monday at $36.33 but quickly soared on news of Murdoch's $60-a-share cash offer. On Tuesday, the stock closed at $56.20, up $19.87, on the New York Stock Exchange.

The bid prompted investors to bid up other newspaper stocks, which have slumped badly over the past year or so. McClatchy shares shot past $30 before closing at $29.48, up 58 cents. Gannett Co., the largest U.S. newspaper chain, saw its stock increase $1.11 to $58.17.

Besides the Journal, Dow Jones owns Barron's, a financial wire service and other products.

Owning Dow Jones would dovetail with Murdoch's plans to launch a business news cable channel later this year. In an interview on News Corp.'s Fox News Channel, Murdoch said he envisions "a business channel that lives up to the quality and traditions of the Wall Street Journal."

A sometimes controversial figure, Murdoch runs a global media giant whose interests include Fox News, the New York Post, 20th Century Fox movie studio, DirecTV, newspapers in Australia and Great Britain and the MySpace Web site.

Although he's reportedly been interested in Dow Jones for years, Murdoch's move still came as a shock.

"It's a stunning bid, out of the blue as far as I'm concerned," Pruitt said.

Dow Jones' two-tier stock structure gives the Bancroft family, which has owned the company since 1902, about 64.2 percent of the voting control, even though the family owns only 24.7 percent of all the stock, according to Securities and Exchange Commission filings. Each share of family stock has 10 times the voting power as a share of the public stock.

Still, the family will come under pressure from public shareholders to do something other than issue a rejection. If the Bancrofts ignore the bid, the public shareholders will almost certainly sue the company, said Paul Lapides, director of the Corporate Governance Center at Georgia's Kennesaw State University.

The bid "may be a tough thing for them to turn down," added Charles Elson, a corporate-governance expert at the University of Delaware.

There are other scenarios. In a story published on its Web site, the Journal said the Murdoch offer could prompt higher bids from the Washington Post, New York Times or Bloomberg LP. Lapides said the Bancroft family could try to take the company private.

"We can be fairly certain that some transaction will happen," Lapides said.

Two-tier structures have been criticized by some as instruments that insulate management from the concerns of public shareholders. In a protest against the New York Times' two-tier structure and other issues, shareholders voted 42 percent of their shares against the company's nominees for board seats at the Times' recent annual meeting. Arthur Sulzberger, chairman and publisher of the Times, has argued that investors purchased shares "with full knowledge and understanding of how the company was structured."

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