It is the world's most famous financial index, a household name from Paris to Peru.Even people who don't know anything about the market know the Dow Jones Industrial Average. It's been the way the world has taken the financial temperature since the Roaring '20s and the Crash of '29. And if Rupert Murdoch gets control of Dow Jones ( DJ), as seems increasingly likely, he will be able to rename it whatever he wants. Hello ... the Fox Dow Jones Industrial Average? The Fox Business Network Average? How about the Rupert and Wendi Murdoch Industrial Average? (Just kidding.) Naming rights to the DJIA may be the surprise kicker to Murdoch's $6 billion-plus battle for control of The Wall Street Journal's publisher. Dow Jones spokesman Howard Hoffman confirms that the company's owner would have exclusive rights to the index and its name. Hoffman questions whether Murdoch would want to tinker with one of the most famous names in the financial world. "The Dow Jones Industrial Average is an iconic brand," he points out. True. But so what? This is business. And Murdoch is poised to spend more than $6 billion on a company that produced $105 million in operating income last year. You have to assume he has a plan to squeeze those assets till the pips squeak. The only way this deal stacks up for News Corp. ( NWS) shareholders is if Dow Jones is milked for the rest of Murdoch's empire. To watch Brittany Umar's video take of this column,
The most obvious beneficiary: The new business TV channel, Fox Business Network. By a happy coincidence, News Corp. announced just last week that the new channel will be launched in October. It's going to be a major investment for Fox, and Murdoch doubtless has big plans for it. Renaming the Dow Jones index "the Fox Dow Jones Index," say, would put his new cable channel on the map in an instant. How better? It would ensure that every competing news outlet around the world would give Fox a plug at least once a day, every day, when they report the market close from Wall Street. CNBC and CNN can try using the S&P 500 index instead, but it doesn't carry the same clout. People want to know what happened to "the Dow." Or ... "the Fox." Don't laugh. Who thought Candlestick Park in San Francisco would be known as US Cellular Field? Or that Marshall Field's in Chicago would become Macy's? People get used to new names pretty quickly. And this would be classic Murdoch. He is the master of cross-promotion, ruthlessly using each arm of his media network to boost the others. News Corp. spokesman Andrew Butcher declined to comment. OK, it's a stretch. It would certainly be a bold move. It might even be an outrageous one. There is no evidence to date of any plans to rename the index.
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.