• by Erik Sass  @eriksass1, August 1, 2007

After months of tortuous negotiations, it looks like News Corp. has finally reached an agreement to acquire Dow Jones & Co. News Corp. Chairman Rupert Murdoch appears to have won over several key holdouts, obtaining 32% of the voting share from the Bancroft Family that controls Dow Jones--the number needed for the deal to go through.

The $5 billion deal will pay out $60 per share--a roughly 75% premium over the $34.63 per share at the end of April--just before Murdoch first announced his bid. News of Murdoch's interest has helped drive the stock up to its current price of $57.58.

Calling the news "a signal event in the history of American journalism," Ken Doctor, an analyst with Outsell, Inc., praised Murdoch's vision and timing: "He sees that we're in the midst of the greatest capitalist expansion in world history, much of it English-speaking. He sees there is a great thirst for timely, authoritative business news and information ... any way they want it: print newspaper, TV, laptops, PDAs."

One synergy is easy to see: Dow Jones content will bolster the credibility and relevance of the Fox Business Channel, set to launch this October. Although CNBC has a deal for Dow Jones content that won't expire until 2012, Murdoch may be willing to wait. Until then, Doctor points to the growing popularity of online video, observing that "CPMs for business video are running $90 right now." Thus, Doctor forecasts even more video content from Dow Jones directly.

Anne Gordon, the former managing editor of The Philadelphia Inquirer and a current partner in the private-investment firm Dubilier & Co., said the deal has a big upside for the flagship Wall Street Journal. "As newspapers encounter more competition from other news sources, it's tremendously helpful for the Journal to have the biggest bandstand they can get for their news. Murdoch brings that into play."

Alone among newspaper owners, Dow Jones is well-positioned in its online media business, which no doubt played a role in Murdoch's offer. The company now derives about 40% of its revenue from online advertising and subscriptions, as opposed to less than 10% for most major newspaper companies. Along with The Wall Street Journal, Murdoch will acquire Barron's, Dow Jones Newswires and the Web sites MarketWatch and Factiva.

In fact, Murdoch's takeover may give other investors ideas.

Although they won't fetch premium prices like Dow Jones, Doctor warned that other newspaper owners should prepare themselves "for essentially hostile bids"--even those companies with dual-class share structures intended to keep ownership in the hands of a family or trust. "We've seen now that it can slow down a process, but it can't stop a process," Murdoch warned, citing companies like McClatchy and Lee as possible targets.

If they hope to stave off takeovers and maintain a substantial newsroom, America's struggling newspapers need to consider strategic options now, according to Gordon. "This is going to open a lot of doors, and spur creative thinking among the larger national papers in terms of what they need to do defensively," she says. "We could have new joint ventures, in a more creative way. For example, looking outside the newspaper world and finding a television partner, an online partner that's quite strong."

Doctor argued a similar line: "It could mean taking on some new partners, who are willing to accept a low return on investment in the short term. It may mean restructuring. It may mean going private." And whatever the strategy, cost-cutting and outsourcing are unavoidable.

Finally, Gordon dismissed the fears that Murdoch will meddle in the Journal's editorial operations. "I never saw that as an issue," says Gordon. "Murdoch has a smart and well-considered plan, and he will quite quickly set about turning these strategic properties to profit. I don't think he can afford to be seen adulterating the content."

Doctor was more cautious: "I don't think we're going to see any direct tampering with the journalistic process through the next year, probably." But he warned that changes in journalistic form--allegedly for business purposes--could result in editorial shifts. "If you say, let's concentrate on doing more short stories for Web distribution, you're de facto cutting the investigative journalism, which got [the WSJ] two Pulitzers in the last round. By adroitly allocating newsroom resources, Murdoch can, in fact, control who and what is covered, and how they're covered."

One thing to watch for: any changes in The Wall Street Journal's editorial page. "They're known for being quite conservative, so it will be interesting to see who they endorse for the 2008 presidential election," said Doctor, with a half-joking prediction: "There's a chance they may endorse Hillary Clinton, because she's a friend of Murdoch."

2007 has seen other new synergies in financial news reporting. In mid-May, the Thomson Corp. received the OK to acquire Reuters Group PLC for $17.2 billion, in a deal that will create the world's largest news and market-data organization. Provided there are no layoffs, the deal will combine Reuters' roughly 15,500 employees with Thomson Financial's 9,300. The upsides: Thomson strengthens its financial-reporting resources, and Reuters gets exposure in Thomson's other specialty areas.