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Implications of bids for Dow Jones and Reuters

Owen Gibson and Andrew Clark

NEITHER THE Dow Jones messengers delivering handwritten updates to Wall Street traders in 1882 nor Paul Julius Reuter, who abandoned carrier pigeons for the new Calais-Dover cable in 1851 as a means of carrying stock information, could have imagined that their businesses would one day be worth as much as those on which they reported. Yet such is the transformation that some of the most august names in business journalism spent much of last week writing about themselves, as the sector was the subject of two blockbuster bids — Rupert Murdoch's $5 billion offer for Dow Jones, owner of The Wall Street Journal, and an offer by Canadian group Thomson for Reuters that could value the venerable news and financial data service at up to £11 billion.

The future of both will be decided by relatively few people. In the case of Dow Jones, it is the reclusive Bancroft family which holds its future in its hands, while the fate of Reuters could come down to the Reuters Founders Share Company. This board of the great and the good, including the former BBC director-general, Sir Michael Checkland, and the former New York Times editor, Joseph Lelyveld, have the power to prevent a single shareholder owning more than 15 per cent if they wish.

The twin bids shone a light on the global battle for financial news provision that has pitched Reuters, Thomson, Bloomberg, Dow Jones, and Financial Times owner Pearson against one another in a global battle for supremacy. News of the Dow Jones bid broke just as Mr. Murdoch's key lieutenants from around the world were preparing for a gathering at his ranch near Monterey in California.

Robert Thomson, the editor of The London Times who previously launched the FT in America, met his boss in New York to discuss the bid. In a New York Times interview, Mr. Murdoch dismissed speculation that Mr. Thomson would be asked to move back to the U.S. permanently but said he would play an advisory role.

And the timing of Mr. Murdoch's online summit was apt. Interpreted in some quarters as a reaffirmation of Mr. Murdoch's faith in newspapers, the Dow Jones bid is as much a vote of confidence in the power of the web. Tellingly, Mr. Murdoch noted that WSJ.com and FT.com were the only two newspaper brands that were able to charge for content. In the City, where every second counts when it comes to trading, information has a price and 800,000 subscribers are willing to pay for access to The Wall Street Journal site.

Unlike general news providers, the likes of Dow Jones, Reuters, and Bloomberg have long established the precedent of paying for up-to-date electronic information. This market of high net worth individuals is also understandably attractive to advertisers. The average WSJ reader earns $191,000 a year and has a household net worth of $2.1 million, according to its own statistics.

Whether Mr. Murdoch succeeds or not will come down to the wishes of the disparate Bancroft family, whose members between them control just over 64 per cent of the voting stock despite holding just under a quarter of the company's overall equity. There was a glimmer of hope for Mr. Murdoch at the end of a lengthy meeting of Dow Jones' board on Wednesday. The meeting broke up with an announcement that the company was taking "no action" on News Corp's offer — a significant difference, according to analysts, from an outright rejection.

American media experts believe that independent directors on Dow Jones' board are pressing the Bancroft family to meet Mr. Murdoch and to consider his offer seriously — pointing out that the company has a fiduciary duty to act in the interests of minority, as well as majority, investors.

Even if he persuades the Bancrofts to think again, and there was growing evidence towards the end of last week that the 35-strong clan was split, Mr. Murdoch will face political scrutiny over his bid from resurgent Democrats who control Congress and foresee criticism from a Murdoch-run Journal in the lead-up to a potentially pivotal presidential election. Morris Reid, a leading Democrat strategist who served in the Clinton administration, said: "Think of the editorial pages under his ownership — all they're going to do is slam, slam, slam the Democrats."

Protest from staff

There were also signs of a groundswell of protest from staff on The Wall Street Journal. Reporter Jesse Drucker emailed colleagues to persuade them to write letters to the three Bancrofts on the Dow Jones board, urging them to "stand firm" against a Murdoch takeover. The New York Observer quoted one anonymous staffer who was even more to the point: "It's out of the frying pan and into a thermonuclear blast. This was the worst-case scenario — other than being sold to Vladimir Putin."

For all that, Wall Street was betting that Mr. Murdoch would succeed or an alternative bidder would emerge — the Dow Jones share price shot up on news of the bid as hedge funds piled in aggressively. Launching a charm offensive aimed at Congress, Journal staff, the Bancroft family, and regulators, Mr. Murdoch dismissed concerns.

In an interview with Fox News he said he had "friends on both sides of the aisle" and foresaw no regulatory problems. And by the end of the week he was publicly sketching out his plans, assuring staff he "wasn't coming in with a bunch of cost-cutters" and that he had newspaper ink running through his veins. He also sought to reassure them that he would invest in the title and was committed to maintaining its editorial independence. Intriguingly, he cited The Sunday Times as evidence of his ability to keep his nose out of day-to-day editorial matters.

"If Murdoch does buy the WSJ, he'll take a generational view and try to decimate the FT," said Paul Richards, media analyst at Numis Securities. Mr. Murdoch's ambitions to boost investment in the WSJ in Europe and Asia, as well as potentially tapping into his other newsgathering resources around the world, might well force Mr. Pearson to reconsider if it wants to hold on to the paper. With two iconic financial brands already in play, could there soon be another? — © Guardian Newspapers Limited 2007

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