Murdoch’s Dow Jones bid: Crazy like a fox

By Tom Lowry, Ronald Grover and Jon Fine

updated 3:29 p.m. ET May 7, 2007

Listen to Rupert Murdoch ruminating about The Wall Street Journal barely three months ago: "I'm worried about it," the News Corp. CEO 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. 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, 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."

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.

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