• by Erik Sass  @eriksass1, May 12, 2008

Just a few weeks after it tendered the offer, Rupert Murdoch's News Corporation is withdrawing its $580 million bid for Newsday, according to an article posted Saturday on the Web site of The Wall Street Journal (also owned by News Corporation). The withdrawal marks a rare reversal for Murdoch, who was long said to be interested in combining Newsday's operations with the financially troubled New York Post.

Newsday is still on the auction block as its owner, the Tribune Company, considers rival bids of $650 million from Cablevision and $580 million from Daily News owner Mortimer B. Zuckerman. On Sunday, another article on the WSJ Web site reported that Cablevision and Tribune were close to reaching a deal.

At first, both Murdoch and Tribune boss Sam Zell seemed ready to treat the transaction as a done deal, giving Tribune a cash infusion to pay down its substantial debt (under the terms of the deal, Tribune would have retained a small 5% stake for several years for tax purposes). But after their agreement was made public on April 22, Zuckerman joined the fray on April 26, followed by Cablevision on May 2.

Murdoch was guardedly optimistic during the News Corporation's earnings conference call on Wednesday, but he also said during the call that he had no intention of bidding the price of Newsday any higher.

With Murdoch out, Cablevision's is now the top bid. But Zuckerman, who also has a long-standing interest in Newsday, may choose to escalate. Murdoch and Zuckerman both coveted Newsday for a number of reasons. Combining it with their respective tabloid properties would offer advertisers greater reach in the New York metro area, and would also allow them to achieve substantial cost savings in printing and distribution. According to Murdoch, if News Corp. acquired Newsday, the cost savings and other synergies would turn the New York Post's $50 million annual loss into a $50 million profit.

Initially, Zuckerman did not offer a higher bid than Murdoch because he argued that his offer would be attractive to Zell for other reasons: namely, it was less vulnerable to regulatory interference, and therefore more likely to actually proceed. Murdoch already owns two newspapers and two TV stations in the New York media market, technically in violation of the new Federal Communications Commission rule governing cross-ownership of media, which allows cross-ownership of only one of each kind of property.

However, Zuckerman's bid is not entirely free of regulatory risk either: both the Federal Trade Commission and the U.S. Department of Justice could investigate and halt the acquisition on anti-trust grounds, if they believed that the combination of the New York Daily News and Newsday gave Zuckerman too much control of local print advertising in the New York metro area. However, Zuckerman could counter that Newsday is centered on Long Island, not New York City--i.e., in a distinct and separate market.

It's believed that Cablevision founder Charles Dolan wants to integrate the Newsday brand with his cable TV business--an idea "we're seeing more and more of," according to Ken Doctor, a newspaper analyst with Outsell Inc., especially as broadband penetration increases and Internet video grows in importance. "You can use the Newsday brand beyond Long Island, and go metro-wide with that," incorporating its content into both cable TV and Internet video channels.