No Choice But to Sell


This is often my first thought when I see take-private offers announced (strategic or financial), and that was again the case with this week’s big deal. In an offer clearly designed to discourage any competition, News Corp. bid for Dow Jones the way the Rangers bid for A-Rod. It made me think of the old Bill Cosby bit about fathers being “dumb, but not so dumb.”

Such a seemingly outlandish number accomplishes a few things, including taking private equity out of the equation (never say never? I’m saying never).

Rupert Murdoch’s bid equates to 18x EBITDA. DJ already traded at a premium to publishing peers who average about 9x cash flow. It’s well known that Murdoch plans a broadcast competitor to CNBC which obviously could leverage DJ content, effectively spreading the cost of the acquisition more broadly. That’s not something another bidder could duplicate easily.

The offer also may have great shock value for some family members. The Wall Street Journal noted last night that 80% family opposition meant that 52% of voting shares opposed the sale. That made for a rather thin margin and meant some relatively small defections could swing the vote in Murdoch’s favor. However, as of today, the Ottaway family (6.2% holders) has thrown its support behind the Bancrofts.

While a 70% deal premium sounds high to some of us, it does not impress everyone. Michael Price, famous investor and proud owner of 350,000 Dow Jones shares, predicted yesterday that the price could reach $100 per share. When the Tribune Company bought Times Mirror in 2000 the deal amounted to an 82% premium over the pre-deal price. However, the EV was about 12.5x EBITDA.

The ultimate brilliance of the bid size is that it does not leave any real room to undercut Murdoch. According to New Yorker columnist Ken Auletta, the Bancroft family “made it clear to me that the last person in the world they wanted to own that paper was Rupert Murdoch.”

Given that, a less-spectacular bid could have invited a white knight, private equity or otherwise. However, Murdoch has thrown down the gauntlet at 18x, and he’s made it impossible for the board to discharge their fiduciary duty while giving voice to competing approaches at more reasonable prices.