Many an executive’s career has had his career ended by the acidic pen of the gossip column Page Six of the New York Post. Rupert Murdoch, proprietor of the New York Post printing press, never thought that the ink would spill on him and affect his bid for Dow Jones.
I originally bought the stock of Dow Jones, the 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, there is not a group more in the doghouse than newspaper stocks.
All the free and up-to-the-minute information available on the Internet has called into question the very survival of newspapers. The next morning is too late for most people like me that are addicted to the 24/7 news cycle. The Wall Street Journal is a rarity - a newspaper that has been able to continue to charge for its Internet content.
Rupert Murdoch made an audacious all-cash $60 per share 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% premium over the closing price.
I sold immediately on May 1. If the merger did not go through, the stock would fall back close to its previous price of $36. At a current price of $58 with a $60 bid, the stock did not have the 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, Murdoch could raise his bid and then I would have left even more money on the table by selling now.
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 A stock would sooner host a 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 assessing correctly the likelihood of a merger.
Many on Wall Street, including me, are arrivistes motivated mostly by money. We have chosen to push paper around for a living instead of curing the sick or defending the poor. Therefore, we can not imagine a situation where someone would walk away from a chance to double their money.
I am sure that the Bancroft and Ottoway clans 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 who they consider an entrepreneur in the field of journalism but not a journalist with blue ink in his blood. After zealously guarding their public trust for one hundred years, they are not going to shed their responsibilities without careful consideration.
If the older generation of the families had their second thoughts, the Page Six of the New York Post confession provided it. In the Page Six confession, a gossip reporter confessed to taking money from a subject, one of the high sins of journalism. The real news was that Murdoch killed a book by his Harper Collins imprint authored by the former governor of Hong Kong Chris Patton 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 interest in China. Opening up the Chinese government has been a personal as well as business priority of the Wall Street Journal and the founding families for years.
Why did Rupert Murdoch risk the humiliation of having his bid completely ignored? Since he is soon starting a business news channel, he needs to neutralize the Dow Jones contribution to his arch rival, CNBC. He 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.
Published by Globes [online], Israel business news - www.globes.co.il - on May 28, 2007
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