Ready for the Fox Dow Jones Industrials?
But the possibility touches on a bigger point. Unless you look at what Dow Jones can do for the rest of Murdoch's empire, his bid makes no financial sense whatsoever.
Sure, The Wall Street Journal is a vanity asset, like owning the New York Yankees. But The economics of the newspaper industry are terrible and getting worse. And at these prices, a man like Murdoch is going to make his asset pay.
Just look at the numbers: When you include Dow Jones' $1.2 billion in net debt, the deal would cost News Corp. about $6.2 billion.
You have to figure he would insist on earning at least a 7.2% annualized return, which is the approximate yield right now on News Corp. bonds. That means the takeover would have to generate profits of about $450 million a year.Dow Jones' operating income for the last three years? Try $135 million in 2004, $96 million in 2005 and $105 million in 2006. If you see anything that looks remotely like $450 million in operating income, let me know. It's unclear so far how much he'd pay in cash and how much in new equity. Or whether he'd look to sell some assets quickly to reduce the initial cost. But that won't change the underlying logic. As a stand-alone asset, Dow Jones can't generate anything close to enough to justify this price. No wonder that even in today's fevered buyout market, when any company with a pulse can attract a swarm of private-equity bidders, no one else could be found to offer $60 a share for Dow Jones. Or even come close. Brian Shipman, a media analyst at UBS, told clients in a note that if Murdoch's offer is rejected, the stock price would probably collapse back down to the mid-$30s, which is what he believes the company is worth on its own. The mid-$30s. When Rupert Murdoch is willing to pay nearly double the market price for something, you know he's seeing opportunities no one else is. Will that include the capturing more value from Dow Jones' famous index? Only time will tell.
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