Murdoch's Dow Jones Bid a Brilliant Deal or a Destroyer of Shareholder Value?

Panel Debates Whether News Corp. Owning WSJ Is a Good Thing

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NEW YORK (AdAge.com) -- If Rupert Murdoch's News Corp. succeeds in buying Dow Jones, a prospect that looks more likely almost every day, the benefits may not be as great for some as they think, a longtime media-industry analyst and a publishing veteran -- who was once managing editor of The Wall Street Journal -- both said today.
Norman Pearlstine
Norman Pearlstine

Public doesn't think long-term
Consider people who own News Corp. stock, for example. "News Corp. is destroying between 10% and 20% of its shareholder value," said analyst Laura Martin, CEO of Media Metrics, during a panel on media mergers and acquisitions at the annual PricewaterhouseCoopers media and entertainment event in New York. It doesn't matter that Mr. Murdoch is a visionary who thinks in decades, not fiscal years or even quarters. "The public market doesn't have 10-year time frames," she said.

The problem? The chief target at Dow Jones is its flagship, The Wall Street Journal, whose name could be deployed to help News Corp. efforts such as its planned business news cable channel. However sterling the name, however, it still refers primarily to a newspaper -- whose print iteration is barely profitable and whose industry's future form is unclear.

Newspapers already contribute about 15% of News Corp.'s earnings before interest, taxes, depreciation and amortization, Ms. Martin estimated. After it buys Dow Jones, newspapers' contribution will rise to 20%.

Brand value 'overstated'
But what about the worth of the Journal's brand? "The value of the brand is vastly overstated by the people who read the paper every day," said Norman Pearlstine, who has been a senior adviser at the Carlyle Group since last September and was editor in chief at Time Inc. for 11 years before that. Mr. Pearlstine was also managing editor of the Journal from 1983 until 1991. Buying Dow Jones and the Journal might dilute News Corp. performance, but Mr. Murdoch would accept that trade-off in exchange for the new voice that the Journal would give him, Mr. Pearlstine said.

"It is very much about non-economic issues," he said. "I don't get it myself from a financial point of view."

That is, unless you're Dow Jones; the $5 billion offer is a "great deal" for that company, Mr. Pearlstine said.

Good deal for Rupert
Other panelists disagreed strongly, echoing the industry's general approval since Mr. Murdoch's bid became public May 1. "It's a brilliant deal for Murdoch," said John Chachas, managing director for media and telecommunications at Lazard Freres. "What brand can Rupert Murdoch buy and do more with than that brand?"

And Lawrence J. Haverty Jr., portfolio manager at Gamco Investors, said he liked the prospect of the sale for all sides. "I surely hope that the Bancroft family and their advisers can see a way to legitimizing this deal," he said.

The Dow Jones board reportedly reached agreement with News Corp. negotiators today on a proposal to protect The Journal's editorial independence from Mr. Murdoch should a deal go through. The Bancroft family, which controls Dow Jones through its supervoting shares, has not approved that proposal or any other elements of a possible deal -- yet.
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