Novice Investing - 50% Return Is Not Enough for Dow

Date: Monday 01st 2008f December 2008 05:29:47 PM

50% Return Is Not Enough for Dow - 05/04/2007

By: Hari Wibowo

This past week, News Corp. (NWS) has expressed interest in acquiring Dow Jones & Co Inc. (DJ). The bid valued Dow Jones at $ 5 Billion and the surprising thing is that it represents a 50% premium over Dow Jones stock price before the deal was announced. With this breathtaking premium, the merger is a done deal, right? Err... perhaps not.

Some members of the founding family of Dow Jones has planned to vote against the deal. All combined, the Bancroft family controlled 50% of the voting right for Dow Jones. I wonder if they would just want to get more from their money or what. Should News Corp bid Dow Jones at 20% premium, shareholders may want to reject the offer. A 50% premium over the stock closing price and still, someone is still complaining. This is truly unbelievable.

While Dow Jones owned some well-known media assets such as Barrons, Marketwatch.com and The Wall Street Journal, the newspapers industry had been struggling to attract advertisement dollars in recent years. Dow Jones itself is expected to earn a mere $ 1.50 per share for 2007. The bid from News Corp. values Dow Jones at $ 60 per share, or 40 times forward earning. What valuation could possibly support Dow Jones? Other big newspapers stock such as Gannett Co, Inc. (GCI) and New York Times Co. (NYT) was trading at 14 and 25 times earnings respectively.

Some of the fallen angels in the field of online advertising (a.k.a Microsoft and/or Yahoo!) may want to grab the valuable media assets of the like of Dow Jones and Gannett. That is no doubt. However, they have other cheaper options than the current News Corp's offer for Dow Jones. Therefore, waiting for other higher bid is probably foolish in the part of Dow Jones' shareholders.

Only time can tell what would happen next. The chance of other bidders for Dow Jones is remotely low, considering the valuation of other newspapers stocks. Also, if News Corp. decides to ante up its offer, that will someday prove to be a costly mistake. Let's see how both sides would do in the coming weeks.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Dow Jones & Co Inc. (DJ) or any other securities.

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