Rupert Murdoch is a patient hunter. Eleven years ago, when I was running my hedge fund, he called me in to talk about acquiring Dow Jones, the company that, as you may have heard, he’s once again interested in buying. Right before he called, I had taken a 4 percent position in Dow Jones and tried to be a shareholder activist—I was convinced the company could make more money from The Wall Street Journal, its crown jewel, and from its Dow Jones newswires. I say “tried” to be an activist because Dow Jones was never really run like a company; it was run more like a vast college newspaper, bent on maintaining journalistic integrity regardless of the business implications. The idea of turning a profit, even as a side benefit, was too sinful for the ultrarighteous management or the clueless-but-revered Bancroft family, which controlled the company through a supermajority stake. Neither contingent was about to listen to a pip-squeak shareholder who actually thought you could make a profit and put out some decent journalism. I remember speaking passionately at the annual meeting about the need to make prudent changes before the losses cut into the Journal’s journalistic integrity. Peter Kann, the chairman and CEO at the time, dismissed me with a laugh.
No matter. While agitating, I had attracted Murdoch’s attention as someone who seemed to understand the worth of Dow Jones as a great brand. He summoned me, through the late Eric Breindel, the New York Post’s editorial-page editor and an old college pal, while I was vacationing with my family at Hershey Park. It was a Sunday morning. Breindel said Murdoch wanted to meet as soon as possible. I explained that I was with my family, but Breindel insisted I come as soon as I could. Murdoch was obviously serious.
When we met, the man asked me what I thought Dow Jones was worth. At the time, the stock was trading in the mid-30s. I said the franchise could be worth $73 to $74 a share. Before I could even present my backup, I remember him saying, “I’ll pay that.” No blinking—$40 more than the stock was trading at. He even talked about the possibility of getting a line of credit from Chase to do the deed.
I told him that the family had no desire to sell, and that the family’s law firm might not even show a bid from him to the Bancrofts. He sneered and informed me that one day they would. On May 1, Murdoch made a surprise bid for Dow Jones of $60 per share, or about $5 billion. Eleven years after our meeting, the hunter had come back for his prey. And from the looks of things, he might get it, and for much less than he was willing to pay back then.
No, the Bancrofts still don’t want to sell to him, but much has changed, most of it of Dow Jones’ own doing, and the chance to stay independent has now been squandered. First, while Dow Jones, the average, has more than doubled since my Murdoch meeting, Dow Jones, the stock, has done almost nothing during that time. That’s a point-blank indictment of management. Few groups of companies have grown faster than those that provide data and information services to all the hedge funds, mutual funds, and brokerage firms out there. But Dow Jones hasn’t kept pace with the other Joneses.
While Dow Jones stood still, Bloomberg, the company, ate into Dow Jones’ bond-reporting business and then outflanked the Dow Jones wire service, one of its most profitable units. Michael Bloomberg had worked at Salomon and knew what the institutions wanted. I recall him schlepping to my old office seeking to sell us a Bloomberg terminal for our newly minted hedge fund. We wanted a half-dozen different data feeds and analysis; he said, “Done.” The journalists who ran Dow Jones didn’t even see the threat coming. Now neither hedge funds nor mutual funds count the Dow Jones newswire as a primary news service, and Bloomberg has become indispensable. Until about a month ago, the Dow Jones wire was an acceptable backup to Bloomberg, so it kept up a decent business. But in the time since Murdoch launched his bid, there’s been a major change in the landscape. Reuters, the third newswire, is merging with Thomson, a terminal purveyor. Thomson’s got a long-term perspective. It would not shock me if it offers Reuters for free to all the funds out there that use Dow Jones if they take the Thomson trading box. Squeezed on the high end by Bloomberg and the low end by Reuters-Thomson, the prospects for the wire, the only cash cow Dow Jones has left, seem bleak.