Forget Murdoch: Yahoo! Should Buy Dow Jones

It also adds some bulk to an entity falling increasingly behind archnemesis Google(GOOG Quote) in the online advertising space. Yahoo! could add another $1.783 billion per year in revenue -- a nearly 30% bump for the firm, which did $6.4 billion in total revenue in fiscal 2006 -- and it also adds another $386 million in profits, a number that almost doubles Yahoo!'s profitability.

Yahoo sports a trailing price-to-earnings ratio near 60, while Dow Jones trailing P/E ratio is near 18. If Wall Street puts an online multiple on the revenue, it raises the potential stock price of the combination dramatically.

Yahoo! is a company that presents an interesting merger story. The higher multiple is only half of it. The Bancrofts, the family that controls Dow Jones, may be more receptive to the hands off editorial policy that lives at Yahoo! vs. the more, ahem, active approach credited to Murdoch.

The key to this is which type of online/offline media mergers this would be. The good ones
-- like News Corp.'s acquisition of MySpace, work out terrifically well. The other type? Need I remind you of the debacle known as AOL-Time Warner(TWX Quote)?

The wild card is Semel. He could really shake things up at the company with this merger. I don't know if he could possibly pull this.

The GE Factor

The primary reason GE must be considered is that a News Corp./Dow Jones merger is potentially very bad news for CNBC, which is a a joint venture between NBC and Dow Jones. I would guess that senior people at CNBC are asking (pleading) with GE execs to make a run at Dow Jones, if for no other reason than to keep the WSJ out of Rupert Murdoch's hands.

Murdoch's interest is in using the Dow Jones infrastructure to power News Corp.'s Fox Business Channel, competing soon with CNBC on a cable box near you. A Murdoch-owned Dow Jones could make life very uncomfortable for the folks at CNBC.

It is conceivable that GE could acquire all of Dow Jones, roll all of its many media properties into a single entity, and then do a full spin-off of the stand-alone media venture.

A short list of GE's non-core, media property holdings that could be part of an NBC Universal spin-off

• NBC Network

• NBC Universal-Television-Group (Television production and syndication)

• Cable Networks: CNBC, MSNBC, Bravo, Sci-Fi Channel, USA Network, etc.

• NBC Local Affiliates

• Universal Pictures

• Universal Studio Theme Parks

Add to that list the full run down of Dow Jones properties: WSJ, Barron's, Marketwatch.com, Dow Jones News Wires, Factiva. That's a rather compelling stand-alone media conglomerate freed from the conflicts and obligations of an industrial parent company ...

One gets the sense that the media properties are not core GE holdings. They have shown little interest in the travails of CNBC as it is but a small component of their media division. They could roll NBC Universal - including NBC, CNBC, WSJ, Barron's, MarketWatch (see sidebar) into a single media-only entity. GE could then spin off their entire media group as a stand-alone.

I'm not sure if it would be at a higher valuation then they are getting at present: GE, CBS(CBS Quote) and Dow Jones all sport comparable P/Es, and CBS stock is at the same price it was in 1999, when it was a very different company. The entire NBC/WSJ/DJ/CNBC package would be somewhere in the $10 billion to $20 billion range, depending upon the total revenue range of all the media properties included.