Breaking Views

Rupert Murdoch's tarnished trophy

It's beginning to become clear that for once, the media mogul did not get the better side of a deal.

By Rob Cox, breakingviews.com
February 6, 2009: 11:15 AM ET

(breakingviews.com) -- Rupert Murdoch isn't easily outfoxed. But the Bancroft family, which sold him Dow Jones, publisher of the Wall Street Journal, looks to have got the better of the media mogul.

The latest News Corp earnings crystallize the value destruction that Murdoch's pursuit of the financial publisher has wrought for shareholders. News Corp paid $5 billion for Dow Jones in December 2007.

As any reader of the Journal knows - and that should include News Corp auditors - the bottom fell out of the financial industry shortly thereafter. Contracting economic growth added to the sting of the newspaper industry's secular decline.

News Corp's (NWS, Fortune 500) quarterly results include impairment charges of $3.06 billion mostly related to Dow Jones. That suggests it still ascribes some $2 billion of value to the business. Is it worth that much? It's hard to say, given the paucity of information on the titles in News Corp's newspaper division.

But it would be hard to call this a mark-to-market valuation when one considers how Dow Jones' rivals have fared since Murdoch nabbed his quarry. New York Times (NYT) shares have fallen 70%. Gannett (GCI, Fortune 500) has lost 86% of its value.

Take the average of those declines and apply it to the price Murdoch paid and Dow Jones would be worth $1 billion. That, of course, implies that the $5 billion that Murdoch paid in the first place was fair. He actually paid a $2 billion premium. Had Dow Jones remained independent, it would be worth even less.

Of course, Murdoch loves newspapers. He may be the last billionaire on the planet who does. And he may even have some tricks up his sleeve, and fairy dust in his pocket, to enable the Journal to buck the industry's downward trend. But on the evidence so far, it's hard not to conclude that the Bancrofts will have the last laugh.

--News Corp became a minority investor in breakingviews.com following its acquisition of Dow Jones. To top of page


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