Why I Don't Think Murdoch Overpaid on Dow Jones Purchase

The recent BreakingViews.com article: Murdoch Investors Are Groaning suggested that Rupert Murdoch overpaid when News Corp. (NWS) acquired Dow Jones for $5.6 billion. Here’s what they said:

Still, to be charitable, assume Dow Jones is worth half the $3 billion it traded at before Mr. Murdoch made his offer. On that basis, News Corporation shareholders forfeited $3.5 billion of value to the Bancrofts and their fellow shareholders.

The authors opine as to what the value of the stock might be today in light of the turmoil at Tribune, Detroit, and The New York Times (NYT). I take exception with their comparison of Dow Jones to any general interest newspaper company for the purposes of valuation.

Rupert Murdoch did not buy a run-of-the-mill general information newspaper. He bought an international financial information company, which happens to also print a few newspapers. The real value of Dow Jones is its financial and business information. If it has a great article about the Mumbai terror attacks, and it did, it’s a nice addition. But I work in media and every day I look in its media section to see if it knows something that I already do not. That information is so valuable, I pay for it.

Several years ago when I was working as a press operator for Dow Jones at its New Jersey plant another pressman pulled me aside and said,

Robert, you know there are some people in the world who know a lot about everything, and there are some people who know enough to get by and then again there are people who know very little about anything. But you see that guy over there (points to high ranking Dow Jones executive walking through the pressroom) that guy doesn’t even suspect anything!

It was hilarious, and disturbingly accurate. The point of my little anecdote is that Murdoch did suspect something.

Here is the financial information company Murdoch acquired on August 1, 2007:

• Dow Jones & Company is a leading provider of global business news and information services. As of 2006 year-end, DJ had annual revenues of $1.78 billion.
• Its Consumer Media Group publishes The Wall Street Journal, Barron’s, MarketWatch and the Far Eastern Economic Review.
• Its Enterprise Media Group includes Dow Jones Newswires, Factiva, Dow Jones Client Solutions, Dow Jones Indexes and Dow Jones Financial Information Services.
• Its Local Media Group operates community-based information franchises.
• Dow Jones owns 50% of SmartMoney and 33% of Stoxx Ltd. and provides news content to CNBC and radio stations in the U.S.

Regardless of whatever is going on at News Corp., The Dow Jones enterprises are high value content producers and will continue to gain in value as time goes on. Their core value was not shattered when classifieds moved online. Q3 2008 advertising data from Pubmatic supports this. Display advertising rates are THE HIGHEST for publications, which cover business and finance. Among the lowest? General information news and sports!!!

Disclosure: I have no positions in any of the companies mentioned.

Comments

[Paul Price:]

Dow Jones Co. did not make good profits during the exceptionally favorable times from 1998 - 2006.

If the owner of the WSJ and Barrons etc. could not function well in that environment, then the whole business model seems much more unlikely to do well in the current situation.

This is a declining business in an internet world where it is very hard to get paid for content.

2008 Dec 17 09:15 AM