When Wall Street Journal’s Sarah Ellison broke the story late Monday that Dow Jones chief executive Richard Zannino and News Corp’s Rupert Murdoch reached a tentative agreement over lunch to bring the News Corp’s bid for Dow Jones before the board of directors, many were surprised that the offer price hadn’t budged from original $5 billion, or $60 a share.
They shouldn’t have been. Throughout the months since Murdoch first approached Dow Jones representatives with his offer, advisers to Murdoch have coached him not to increase his bid. Early on some thought he might increase the price in an attempt to overcome resistance from some members of the Bancroft family. But Murdoch’s investment bankers advised him that it was foolish to bid against himself, raising his offer at a time when the Bancroft’s had not yet indicated that they were willing to sell at any price.
Some of Murdoch’s advisers believed that a higher, second bid might have actually invited a competing bid for the company if it was seen as Murdoch’s best offer. By sticking to the original bid, Murdoch may have discouraged other potential bidders who were not sure they could outbid the deep pockets of a cash rich News Corp.
Even after negotiations with the Bancroft family began, some observers thought Murdoch might increase his bid. “While the initial $60-a-share offer represents a hefty premium over where Do Jones’s stock was trading before Mr. Murdoch’s offer became public, Dow Jones hopes the Bancroft family’s ambivalence about the Murdoch deal could help the company extract a few more dollars per share,” Ellison writes in her story today.
The thinking in the News Corp camp, however, runs completely in the other direction. The Bancroft family had already extracted value from News Corp in the form of promises of editorial independence, and had dragged out the negotiating process—taking up time and energy from Murdoch and his advisers. These discussions and concessions have been seen as part of the price News Corp was paying to buy Dow Jones. In effect, they were counted as increasing the cost of the deal.
What’s more, the Bancroft family’s continued ambivalence despite the negotiations and concessions has frustrated Murdoch and his advisers. The view within the Murdoch camp has been that as long as the Bancroft family continued to resist selling the Dow Jones for non-financial reasons, there was little point in increasing the financial incentives.
“The Bancrofts kept saying that this wasn’t about the money,” one person familiar with the News Corp strategy said. “Murdoch decided to take them at their word.”
While initially trading higher this morning, the stock dropped today to its lowest level since the Bancroft family first agreed to meet with Murdoch at the end of May. This may indicate traders now believe that Murdoch will not offer a higher price than his original bid.
Dow Jones, News Corp. Set Deal [Wall Street Journal]