Professor Elam

Rupert Murdoch is trying to take over the Wall Street Journal.  Click to read the story.  We have discussed numerous take overs in class and you have reported via books and movies on them.  Please click on the graph yours truly has thoughtfully provided at left.  Note this is a WEEKLY graph going back several years.  Clearly the stock of the Dow Jones DJ company has been in a long term decline. Murdoch offered  huge premium over the existing price-$60 which is $25  higher than it has traded for some time.  And the owner reaction? Nah, we ain’t interested.

Murdoch is famous for shaking things up.  CNN and MSNBC have seen their fortunes turn down since FOX got serious about cable news. As you know the newspaper business is not what it used to be. But wait, think about what we have studied in class about P/E, E/S, at the current earnings per share the $60 price reflects a much higher P/E than the market puts on DJ.  In fact at 55 the p/e is 13.27, at 30 it was about 8, so what does Murdoch see here?  So you see how the higher P/E is a vote that he sees earnings potential that the market does not?  And that the current owners are not able to deliver?

Well first of all, he wants one of the crown jewels of American business publishing.
And the entrenched ‘journalists’ of another age are in a snit about it, ignoring the reality of the internet and lower readership. For example, the Dallas Morning News readership plunged 14% in just the last six months.  If they didn’t have the pull out tv section, would anyone buy it?

But I digress.  Murdoch is planning to launch a rival to CNBC on television, yep an all day business channel. No doubt he wants to use the reporting assets of WSJ to complement his new channel.  Will he be able to take viewers away from well establsihed CNBC?  That will be a lot tougher than taking them from CNN I think as it is not so much a matter of political bias.

Note that this P/E is closer to the overall market. But remember, Murdoch is spending $60 B here, so he will have to make the money back to pay for this, and earnings will have to be substantially improved. 

Will the owners sell, can they justify not taking the offer (this sort of well we are worth more than that in the face of the fact that the market does not think so it typical reaction in this sort of deal.)

As Jerry Lee Lewis might say, there’s a whole lot of shaking going on here, but it is in the Boardroom of the DJ company trying to justify their lack of shareholder value.