Rupert Has a Keen Nose for Weak Quarry

Media Mogul Sniffed Big Opportunity in Declining Fortunes of Newspapers

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Many great predators know when their prey is most vulnerable. Rupert Murdoch is one of them.
Rupert Murdoch.
Illustration: Hector Mata

News Corp. Chairman Rupert Murdoch reached for the Journal at an opportune time.

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By publicly springing his $60-a-share offer on the company's board at a moment when Dow Jones -- caught in a larger newspaper-publishing slump in which irritable shareholders already had forced Tribune Co. into private ownership and Knight-Ridder into oblivion -- found its share price had declined to $36, Mr. Murdoch made it virtually impossible to refuse for a board sworn to preserve shareholder value.

Mr. Murdoch also knew that with the newspaper industry experiencing a steady erosion of circulation and ad revenue -- an erosion set to continue, according to most accounts -- potential rivals would be averse to bidding for any property, especially such a pricey one.

Even newsroom staffers wishing for white knights did an about-face when it seemed Pearson, publisher of The Financial Times, might make a bid.

"There were acute worries about a Pearson deal, that if that actually happened, their first move would probably be to shut the overseas editions of the Journal and scale back the international coverage," said one editor. "People were flipping out."

Prime time
All in all, then, a great time to pounce. "You can argue whether or not it was the best timing in terms of the price and the upside," said veteran newspaper-industry analyst James Goss of Barrington Research, Chicago. "But the likelihood of ever finding a more opportune time to force a property like Dow Jones onto the market is pretty small."

And for Mr. Murdoch, who is seeking The Wall Street Journal and its siblings as an anchor for his planned Fox Business Network, that was precisely the point.

"This is not any sort of vote of confidence in the newspaper business; it's an attempt to launch a global financial-news network," said analyst Edward J. Atorino of Benchmark Co. "He has a grand design. He's not bargain shopping."

And by most measures, Mr. Murdoch didn't get one.

If the Bancroft family follows the Dow Jones board and accepts his $5 billion offer, Mr. Murdoch is buying into the newspaper business at a moment when it is in an advertising and circulation free-fall that neither executives nor analysts predict will end anytime soon.

According to the Newspaper Association of America, total print and online newspaper ad expenditures fell last year by 0.32%, the first combined decline the industry group has recorded.

Can't-refuse offer
Ad sales are declining at a historically fast pace now that the real-estate bubble that propped up classified advertising has dissipated.

That free-fall was on public display in the days following the news of the Dow Jones board's support of Mr. Murdoch's bid, as publisher after publisher shared declining-revenue news with Wall Street.

Second-quarter revenue at Gannett Co. fell 3.5%, McClatchy saw an 8.3% drop and there was a 10% decline at Media General. Dow Jones' own Wall Street Journal wasn't spared either, as it announced a 4.9% drop in ad revenue, as well as a 14.4% drop in ad volume.

Those figures are, of course, merely the freshest in a long string of disappointments that have cost newspaper investors more than $15 billion since 2004, according to Deutsche Bank analyst Paul Ginocchio.

"It wasn't for sale, so he had to get the family to want to sell," Mr. Atorino said. "And in this environment, when the stock is at $36, he figured $60 was an offer they couldn't refuse."
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