Why Would Dow Jones' Bancrofts Oppose News Corp's Offer?

Includes: DJ, NWS
by: Valuecruncher

Rupert Murdoch’s News Corp (NASDAQ:NWS) has offered $60 a share for The Wall Street Journal publisher Dow Jones & Company (DJ); the unsolicited offer values the company at over $5 billion. Dow Jones & Company’s other publications include Dow Jones Newswire, Barron’s and MarketWatch.com. Dow Jones & Company would provide an excellent fit with Murdoch’s upcoming launch of the Fox Business channel. Despite the offer of $60 per share representing a significant premium to the closing price on Friday 30 April 07 of $36.33 the Bancroft family who collectively represent approximately 52% of the voting rights have indicated they will oppose the offer.

Based on analyst’s projections Valuecruncher values Dow Jones & Company at $34.89 per share with a range of $28.21 to $41.93. Valuecruncher’s valuation is slightly below the pre-offer price of $36.33 and the Murdoch offer is considerably higher the than the upper end of Valuecruncher’s sensitivity range. The offer price of $60 implies and EV-EBIT multiple of 35.6 compared to the Valuecruncher mid-point of 21.3. Pearson’s whose operations include the Financial Times and book publishers The Penguin Group are currently trading at an EV-EBIT multiple of 16.

Based on the discounted cash flow and comparable company analysis Rupert Murdoch’s offer appears attractive. I will give the Bancroft family the benefit of the doubt and assume that they are playing hardball and waiting for Murdoch to increase his bid. In the absence of an alternative offer this one appears a no brainer - take the cash.

Valuecruncher Assumptions

Cost of Capital [WACC]: 10%

Short-term EBIT Growth: 56% (2007), 17% (2008) and 19% (2009) - Based on analysts estimates.

Terminal Growth Rate: 3%