Crazy Like a Fox
Listen to Rupert Murdoch ruminating about The Wall Street Journal barely three months ago: "I'm worried about it," the News Corp. (NWS) Chief Executive told BusinessWeek. "I'd do something different to what they have done…. I think the Journal's opportunity is that it has a wonderful brand and that it could really go after The New York Times on significant world and national news. This is me theorizing about it. I don't think we'll ever get it. I don't think they'll sell it."
Talk about lulling a target into a false sense of security. Stunning the entire reporting staff of the Journal, as well as the usually-plugged-in worlds of private equity and public media companies, Murdoch confirmed on May 1 that he was offering $60 a share for The Wall Street Journal's parent, Dow Jones & Co (DJ). Carrying a trade-halting premium of 66% over the stock price at the time of the bid, the $5 billion offer was calibrated to make it excruciatingly difficult for Dow Jones' controlling shareholders, the Bancroft family, to turn it down. Murdoch knew that even the most richly endowed private equity houses would have a hard time matching the bid, focused as they are on quick returns—never really an issue for Murdoch.
And the timing was classic Roop. Longtime Dow Jones CEO and Murdoch pal Peter Kann had just left the board. Kann's successor, Richard Zannino, 15 months into his tenure, "has done a good job of engineering a turnaround," says John Linehan, a fund manager at T. Rowe Price (TROW), which owns 15% of Dow Jones' outstanding shares. "The trajectory is favorable, and Rupert saw that. You'd rather make the bid early, rather than late in the game."
Still, $60 a share for a company that some media watchers figure was fully valued at $36. Why would the wily Australian-born mogul be willing to pay so dearly for a print-heavy company at a moment when newspapers are losing readers and advertisers? The answer takes you into a very Murdochian world that combines legacy, a quest for respectability, and an unerring instinct for what's at the heart of business and economic power.
Murdoch, 76, has long evinced a talent for peering around corners. That has allowed him to build a global media empire that encompasses newspapers, satellite television, the Web, a movie studio, and book publishing. Last year, News Corp. generated $2.3 billion in net income on $25.3 billion in revenues, both up nicely from the previous year. The company has amassed an $5.4 billion cash hoard—a nice thing to have when the boss is in an acquisitive mood.
Today, Murdoch sees a globalized world where financial information is the coin of the realm. The 2005 acquisition of MySpace signaled a late-life conversion to the power and possibilities of the Web. And each morning as he read The Wall Street Journal, Murdoch dreamed of exploiting the newspaper's high-caliber business journalism and deploying it to nourish his online, satellite, and television properties, which this autumn will include the Fox Business Channel. "Rupert wakes up in the morning and thinks about how he can change the media world and where there are white spaces," says Peter Kreisky of Boston-based Kreisky Media Consultancy. "He had a plan that made [the Dow Jones] assets worth more than they would in just about anyone else's hands."
A New Platform
Then there are the personal reasons. Murdoch mostly owns low- and middle-brow media properties—from the New York Post to Fox News. How satisfying to have in his hands the most respected business newspaper in America, whose editorial page meshes neatly with his own world view. What's more, Murdoch believes he and his organization have a role to play in shaping the debate on the world's pressing issues. He has strong views on taxes, war, domestic and foreign policy, and more. Murdoch has built his empire, in part, by assiduously courting the powerful. The Journal could be an invaluable tool of influence.
From the very start, Murdoch has been more consumed with vision than numbers. Chastised by Wall Street for most of his business life for taking on debt and giving short shrift to investors, Murdoch's modus operandi has always been straightforward: find places where entrenched rivals have grown lazy or where the more timid fear to tread.
In the 1980s, Murdoch was eager to take on the then-Big Three TV networks. With typical bravado and an almost pathological disregard for risk, Murdoch hooked up with junk bond king Michael Milken and in 1985 plunked down a then-hefty $2 billion-plus to buy seven TV stations in major markets. The outsize leverage contributed to a near-death experience for News Corp., which five years later came close to going under. But the company survived, and Murdoch's instincts proved prescient. His Fox network, launched in 1986, carried edgy programming that appealed to young viewers and gave the established networks agita. Not long after, Murdoch once again confounded his critics by paying more than $1 billion to steal from CBS the rights to show National Football League games on Sundays.
Murdoch—keen as always to influence public discourse—sensed a profound displeasure among middle-Americans with establishment TV and the way the cognoscenti cover politics. So he created an entirely new TV vernacular with Fox News, which zoomed past CNN in the ratings and has had an outsize influence on U.S. politics ever since.
Occasionally, Murdoch's crystal ball has failed him. In the late 1990s he became enchanted by the potential that a TV could do more than just beam shows into living rooms. The idea that the average Joe could somehow interact with his Sony (SNE) Trinitron, ordering clothes or a pizza with a click of his remote, intrigued him so much that he allowed himself to be sweet-talked by another media mogul: John Malone. A titan of TV distribution in his own right, Malone convinced Murdoch to merge News Corp.'s TV Guide holdings with the little-known Gemstar International. The firm made electronic guides to help cable subscribers scroll through channels. It was one of Murdoch's rare flops. Not only was the idea way ahead of its time but Gemstar's stock collapsed amid accusations of accounting irregularities. In 2002, News Corp. took a $6.1 billion writedown on that investment.
If one trait defines Murdoch, it is a willingness to walk away. Consider his brief flirtation with satellite TV in the U.S. Having bought a 38% stake in DirecTV (DTV) in 2003 as a way to distribute his shows and avoid being beholden to the cable companies, Murdoch did an about-face three years later, agreeing to sell the stake when it became clear that the Web was the platform of the future.
By then, Murdoch had paid $580 million for MySpace, a price that had jaws dropping among his fellow moguls in Old Media. But Murdoch, who was counseled on the deal by son James, saw the social-networking site as a key promotional vehicle for Fox's properties—from The Simpsons to X-Men—to MySpace's young members. On top of that, Murdoch's competitive juices were flowing: Early on, the News Corp. CEO told associates, he intended to beat Viacom (VIA) and its octogenarian Chairman Sumner Redstone, who had also expressed an interest in the site. In the end, Murdoch had even his doubters believing, especially after Google offered $900 million over three years to provide its search services to MySpace.
As he recognized the opportunities online and felt a clear void in his global empire where business news should be, Murdoch last year began reconsidering a move on Dow Jones. The Journal's redesign that rolled out last fall bothered him, as did a strategy to put breaking news stories online rather than in print. In Murdoch's view, shorter news stories are what create excitement and urgency for readers.
For a while, Murdoch largely kept his Journal appetites to himself. He didn't consult his inner circle, which includes President and COO Peter Chernin, CFO David DeVoe, and Roger Ailes, who heads Fox's news operation and is a conservative Murdoch soulmate. Nothing surprising there. When it comes to big moves, Murdoch keeps his own counsel. The decision to go after Dow Jones, says one intimate, "was pure Rupert. He came in one day [in April] and said, 'It's time.' " He then consulted with Robert Thomson, editor of the Times of London and a fellow Aussie, who some suggest may end up running the Journal.
Murdoch, who had watched the long, tortuous sale of the Tribune Co. (TRB), told DeVoe he wanted a knockout bid. "Family owners are never easy to deal with," says a Murdoch associate—no small irony there. "And Rupert wanted to scare off potential private equity bidders."
While a bidding war could still erupt, few on Wall Street or in media circles believed such a thing will come to pass. "I thought Dow Jones was fully priced at $36," says Norman Pearlstine, a former managing editor of The Wall Street Journal and now a senior advisor to the private equity firm Carlyle Group. "It would be awfully expensive for anyone to take a look at it. We're all just saying, 'Wow!' "
Murdoch's next chore will be trying to identify sympathetic and persuadable members of the Bancroft family, which holds voting control of the company. On May 1, director and family representative Michael B. Elefante stated that a Bancroft bloc with the shares to turn down the bid would vote to do so. Governance experts say that in a company with a dual-stock structure, there's little legal recourse for investors if the family spurns News Corp.'s advances. But the family does not vote monolithically and has a history of harboring dissenters. Moreover, time and again Murdoch has shown willingness to pay up for assets he craves. "There is plenty of time," he told Fox's Neal Cavuto. "And we just take it calmly and hope that they will take it calmly and think about it."
Assuming Murdoch wins over the Bancroft family and gets his hands on Dow Jones, what happens now? Murdoch isn't offering many clues right now, but you can see one easy move would be to share Journal and Dow Jones Newswires stories with his more than 175 newspapers, both in print and online; perhaps launch Journal-branded TV programs through his various channels across the globe. Or why not even brand his new cable-TV business channel with a powerful name—Wall Street Journal TV? Some suggest he might even seek other acquisitions in financial information. Consultant Kreisky and a former News Corp. executive both believe in time he may even make a run for the London-based Financial Times to create an even stronger worldwide presence.
Digitally, both online and through video-on-demand on TV, Murdoch may tailor financial information for investors, particularly using Dow Jones' Barron's publication, the newswires, and its Factiva database. What's more, Dow Jones' higher-end readership could be exploited by a recent acquisition made by Fox Interactive Media, a behavorial tracking firm that helps point advertisers to certain groups with particular habits and tastes. "Rupert is already putting the pieces together to make a huge online advertising play," says Ken Doctor, a lead analyst with newspaper consultancy Outsell. "If he gets Dow Jones, he would have one of the last missing pieces [in terms of audience]."
Meanwhile, Murdoch has opportunities in print as well. The Journal now gets about half as much ad revenue per copy as The New York Times, according to Deutsche Bank (DB). But by combining Dow Jones' properties with his own, Murdoch will have the opportunity to "sell really compelling cross-platform packages, which are in vogue with advertisers," says Maggie Knoll, a senior partner and print director at MindShare, a WPP Group-owned media planning firm. "This could provide advertisers with access to powerhouses across all types of media. Within the business sector, there's nobody like that." She said it would be fair to compare what Murdoch would be able to offer in business to what ESPN offers in sports.
Not Slowing Down
Murdoch believes he has another 20 years in him; after all, his mother just turned 98. "I expect to be running this company as long as I still have my marbles," he told BusinessWeek last year. But the succession issue can't be brushed aside. Most people believe one of the three children from his second marriage will inherit the throne.
Which one has been the subject of lively debate for years—including around the Murdoch Thanksgiving table. Eldest son, Lachlan, 35, still a News Corp. director, bolted from the company two years back after he knocked heads with Ailes, say News Corp. insiders. Most bets are on James, 34, who runs the BSkyB satellite TV business in Britain and is said to be very much in the mold of the old man. The wild card is Murdoch's current wife, Wendi Deng, who has two young children with the mogul and could complicate the succession should her husband suddenly die.
You can be sure Murdoch is not dwelling on such matters. He's got an acquisition to get done and a digital future to build.