News Corp. Agrees to Buy Dow Jones for $5.2 Billion

By Gillian Wee and Leon Lazaroff

Aug. 1 (Bloomberg) -- Rupert Murdoch's News Corp. agreed to buy Dow Jones & Co. for $5.2 billion, gaining control of the Wall Street Journal and ending the Bancroft family's 105 years of stewardship.

Dow Jones investors will receive $60 a share, the companies said today in a statement. The offer is 4.6 percent higher than the closing stock price yesterday and a 65 percent premium over April 30, the day before Murdoch's bid was announced.

The purchase of the Journal, the second-biggest U.S. newspaper by circulation, Dow Jones Newswires and Barron's satisfies Murdoch's long-expressed desire to own New York-based Dow Jones. The assets will be added to News Corp.'s more than 110 newspapers, stretching from Sydney to New York to London, film and TV studios and the Fox News cable network.

”News Corp. will be able to extract value from the brand," Michael Morris, an analyst at UBS AG in New York, said in an interview yesterday. “They've paid a premium. Realizing the value is contingent on a successful expansion."

A divided Bancroft family accepted the offer after more than three months of debate over Murdoch's impact on news coverage at the Journal, which has a daily circulation of 2.06 million. Murdoch, 76, pledged to maintain the editorial independence of Dow Jones, winning enough support to complete the purchase when Bancroft family members controlling at least 37 percent of the company approved the deal.

Shares Soar

Shares of Dow Jones rose 72 cents, or 1.3 percent, to $58.10 at 4:01 p.m. in New York Stock Exchange composite trading, adding to yesterday's 11 percent surge. Class A shares of New York-based News Corp. climbed 12 cents to $21.24.

Moody's Investors Service said it was reviewing Dow Jones's senior unsecured notes for a possible downgrade.

Goldman, Sachs & Co. advised Dow Jones, while Merrill Lynch & Co. was the adviser for the Bancroft family. JPMorgan Chase & Co. advised News Corp., according to the statement.

The transaction is expected to be completed in the fourth quarter, the companies said.

Federal Communications Commission member Michael Copps said he had concerns over whether combining Dow Jones and News Corp. would reduce independent media voices in New York City. In a statement, he called for a “careful factual and legal analysis" of the transaction.

The purchase values Dow Jones at $5.6 billion including the assumption of debt, according to George Sard, a spokesman for the company at Sard Verbinnen & Co.

'Fait Accompli'

Murdoch offered a price that other potential bidders, including CNBC owner General Electric Co., couldn't match.

”The Bancrofts were staunchly opposed but there's no other alternative," said Richard Dorfman, managing director at Richard Alan Inc., an investment company in New York. “Once nobody else became available as a buyer, the deal became a fait accompli."

The Bancrofts hold 64 percent of the voting power at Dow Jones and some family members resisted a sale to Murdoch on concern he would influence editorial content. In a separate statement, the family said the decision to sell came after “much soul-searching."

An editorial oversight board was created to oversee the hiring and firing of top editors at the Journal and Dow Jones Newswires, and changes in their responsibilities. Members of the five-person board include former Associated Press Inc. President Louis Boccardi, former Tribune Co. executive Jack Fuller and three others, the company said in a government filing.

Family Opposition

Leslie Hill, a Bancroft family member who opposed the sale, resigned from the board yesterday. In a letter, Hill said the offer price doesn't “outweigh the potential ramifications of the loss of an independent" news company. The oversight board won't “ever be a match for true independence," she wrote.

James Ottaway Jr., a former Dow Jones executive whose family owns about a 7 percent stake, also opposed the deal. “It's a bad thing for Dow Jones and American journalism that the Bancroft family could not resist Rupert Murdoch's generous offer," Ottaway said in an e-mailed statement yesterday, “I hope Rupert Murdoch, and whoever follows him at News Corp., will keep his promises to protect and invest in" Dow Jones news products.

Dow Jones will bolster News Corp.'s planned financial news channel, Peter Kreisky, president of Kreisky Media Consultancy in Boston, said. “The first thing you'll see is the branding of the Fox business channel with the Wall Street Journal name."

Dow Jones and CNBC compete with Bloomberg LP in providing financial news and information. Fox Business Channel, scheduled to start in October, will compete with Bloomberg.

CNBC Contract

To use Dow Jones material for his business channel, Murdoch may need to buy out the Wall Street Journal's contract to share content with CNBC through 2012, said Morris, who has a "buy" rating on News Corp. shares and doesn't own them.

Murdoch became the largest publisher in Australia after starting with one newspaper in 1952. News Corp. also owns the New York Post in the U.S., the Fox television network and a satellite-TV business in Asia.

In his 1981 purchase of the London-based Times, Murdoch consented to an autonomous editorial board with power to approve the hiring or firing of top editors. Murdoch broke his promise not to interfere, according to Harold Evans, who was editor of the Times for a year under Murdoch.

Charles Dow

The Bancrofts have controlled Dow Jones since 1902, 20 years after it was founded by Charles Dow, Edward Jones, and Charles Bergstresser.

The family's hands-off approach insulated the Wall Street Journal from outside influence. The newspaper has won 33 Pulitzer Prizes, fourth behind the New York Times, Washington Post and Los Angeles Times. USA Today is the country's largest newspaper, with circulation of 2.27 million, according to the Audit Bureau of Circulations.

The company also made strategic blunders, such as the 1990 purchase of Telerate, a financial data provider, for $1.6 billion. Dow Jones sold Telerate in 1998 for $510 million.

After 2000, budget cuts at technology companies hurt advertising revenue. From a peak close of $76.75 in June 2000, Dow Jones shares fell to $36.33 on April 30, the day before Murdoch's offer was disclosed.

”If you've spent your whole life in journalism at the Wall Street Journal this is a great shock," said Norman Pearlstine, a former Wall Street Journal managing editor who is now a managing director at Washington-based buyout firm Carlyle Group. “If you're looking at the ways companies come and go, 100 years is a great run but lots of traditions come to an end."