Forget Murdoch: Yahoo! Should Buy Dow Jones
05/09/07 - 07:41 AM EDT
Barry Ritholtz
This column was originally published on RealMoney on May 8 at 9:40 a.m. EDT. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.
The media spent the weekend all abuzz over Rupert Murdoch's bold $5 billion bid for Dow Jones(DJ Quote - Cramer on DJ - Stock Picks). The synergies between the Wall Street Journal and News Corp.'s(NWS Quote - Cramer on NWS - Stock Picks) pending Fox Business Channel makes obvious sense. And despite the pre-existing agreement between Dow Jones and General Electric's(GE Quote - Cramer on GE - Stock Picks) CNBC unit, it would certainly rattle the execs at NBC Universal (GE's media division) -- something you suspect Murdoch might enjoy. A parallel story line was the resurrection of the Microsoft(MSFT Quote - Cramer on MSFT - Stock Picks) acquiring Yahoo!(YHOO Quote - Cramer on YHOO - Stock Picks) rumor that has been around for years. I do not see that as a winning combination. The vast majority of Microsoft's profits come from Office and Windows (Vista), followed by Database SQL. The company's Web properties do not contribute a whole lot to the bottom line. Then on Monday these two separate M&A stories serendipitously came together when a few subscription-only Barron's columns "accidentally" showed up on the free Yahoo! Finance section. Which got me thinking ... The most natural acquirer for Dow Jones would be GE (more on this below). But if GE is not interested, then the next most intriguing buyer could be Yahoo! Its market cap is more than $41 billion, so the company could easily absorb Dow Jones in an all-stock deal, matching Murdoch's $5 billion offer. They would also be a white knight much more acceptable to the major and minor family shareholder groups. The Bancrofts, who own a majority of the controlling stock, have been rather equivocal in responding to Murdoch's offer. But nearly as important have been the minority shareholders, most prominently, the Ottaway family trust. They released a scathing statement saying that "a takeover by Rupert Murdoch's News Corporation would ruin Dow Jones and its crown jewel, The Wall Street Journal." All things considered, a combination of Yahoo! and Dow Jones makes much more sense than either a News Corp./DJ pairing or the recently rumored Microsoft/Yahoo! coupling. The Microsoft/Yahoo! combination makes the least amount of strategic sense. Mister Softee gets less than 5% of its revenue from its online properties. As noted above, Office, various flavors of Windows and SQL generate the lion's share of both revenue and profits. Some analysts have even argued that the entire Web side of the business has been a giant money-losing distraction to the Redmond, Wash., behemoth. If Microsoft CEO Bill Gates and Yahoo! CEO Terry Semel agree with that assessment and Yahoo! grabs Dow Jones, (pardon the dirty word) the synergies make a lot of sense. They get a primo media property that has a growing Web presence that fits into Yahoo's existing business model. And, it creates a broader network to serve ads, both online and off. It's a strong way to combine the highly-sought-after, high-income demographic of the Dow Jones properties with the high-volume Web traffic Yahoo! generates.
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