Tuesday, July 31, 2007

Devalued families

So much for the elaborate two-tier stock ownership structures that are supposed to protect newspaper companies from unwanted acquirers.

Skillfully dangling $5 billion before the members of the Bancroft family, Rupert Murdoch captured Dow Jones, a crown jewel of American journalism, after the dithering clan surrendered to its greed and embraced the inevitable (which we always knew it would).

While there is a danger of overstating the significance of this singular event, the DJ payday should make for interesting conversation at future reunions of the families who “control” the Belo, McClatchy, New York Times and Washington Post empires.

Like Dow Jones, each of the family companies has a bloc of super-voting stock held by the descendants of the founding publishers who years ago took their companies public.

The two-tier stock arrangements made it possible for the founders to pull substantial cash out of their businesses while ostensibly assuring their companies would remain in the control of their descendants, thus insulating their newspapers from the pressures of an unenlightened Wall Street.

This worked fine, so long as newspapers operated in monopoly and near-monopoly conditions that enabled them to reliably increase their sales and profits in good times and bad. But we aren’t in the 1990s any more and we may not pass that way again. Fully cognizant of this, Wall Street has sold off newspaper stocks with a vengeance.

As a result, each of the four family-“controlled” companies – like Dow Jones prior to Mr. Murdoch’s overture – has suffered a precipitous drop in the value of its shares since 2004. McClatchy is down 65.3%, NYT is off 41.1%, Belo is down 28.9% and WaPo is off 19.6%

Each of the family companies, therefore, is potentially vulnerable to a well-capitalized investor, like Mr. Murdoch, who feels the undervalued assets would make a tasty strategic acquisition. The same could be said for any of the other publishing companies, whose stocks are equally battered but aren’t “protected” by a two-tiered ownership structure. But NYT and WaPo are particularly vulnerable to an unwanted acquirer, because of the cachet and potential political clout they represent.

So, you have to wonder how one of these clans would react if someone rolled a multibillion-dollar grenade into its family circle. While the dynamics are different at each of the publishing families, the Dow Jones transaction demonstrates that the unthinkable can suddenly become very real.

As discussed here earlier, the threat of an unwanted takeover could impel a company like the NYT to consider taking itself private before a heavy-hitting suitor bumps the price of its stock to the point it is financially difficult or impossible for the family to retain control. Or, family enterprises may elect to tough it out, as several of the Bancrofts initially attempted to do.

If the families continue to cling to the illusion they are in control, however, they may be right only about the illusion, not the control.


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