Tuesday, August 16, 2005

Jonesin’ to sell Dow Jones

Although it’s like carrying coals to Newcastle to give financial advice to the owners of the Wall Street Journal, this is not the best time to consider the sale of Dow Jones. The publisher should fix its business first.

The price of DJ’s stock rocketed when no less an authority than the New York Post reported that restive members of the Bancroft family, which owns a controlling interest in the company, would like to see the company sold. Although a representative of the family sought to tamp down the boomlet, DJ’s shares rose 11% on Tuesday to close at $41.14, the biggest one-day gain in a decade.

Most other newspaper shares jumped, too, in the sort of knee-jerk market reaction that is more jerk than knee. Although ardor and newspaper stocks cooled after a good night’s sleep, that didn’t stop Wall Street analysts from doing some analyzing.

One of them, Paul Ginocchio of Deutsche Bank, put his finger on perhaps the biggest problem at Dow Jones: The flagship Wall Street Journal is generating less than half the revenue per issue than the New York Times, the only paper that can be compared fairly with the Journal.

Average daily circulation for the Journal was 1.8 million copies in 2004 vs. 1.13 million for the NYT. But the NYT also sold nearly 1.7 million Sunday papers.

“For the latest 12 months, the New York Times generated revenue of approximately $4.56 per print paper circulated vs. the WSJ at $1.97,” reports Paul. “This significantly lower revenue per paper for WSJ…is taking place despite a better reader demographic at the WSJ.”

The discrepancy underscores the need for the Journal, which now publishes only Monday through Friday, to launch the weekend edition debuting in mid-September. The weekend Journal will blend its staple business news with what publisher Karen Elliot House called “the pleasure of the weekend."

If the weekend Journal is a hit, the paper presumably will help DJ’s stock after the considerable start-up costs are digested. If the weekender is a dud, things will get ugly in a hurry.

In the meantime, the company has attempted to diversify its holdings and build its online presence by acquiring MarketWatch.Com. The pricey MarketWatch acquisition effectively caused the Journal to double down its bet on a volatile advertising base.

With DJ inordinately dependent on national financial advertising, it is vulnerable to glitches in the business cycle, which even a fabulously successful weekend paper will not buffer. “If the economic recovery falters or if the next business cycle is delayed or weaker than expected, DJ shares could suffer,” says Paul.

Notwithstanding this week’s increase in the stock price, Paul believes DJ is worth between $50 and $55 a share to such potential acquirers as NYT; Gannett; Warren Buffett and/or his friends at the Washington Post, or Rupert Murdoch and his News Corp.

One thing is sure: A low-ball takeover would not be welcome in DJ’s executive suite.

The options of most senior execs “are priced in the $52 to $61 range,” explains Paul. “They would not want the company sold in the low- to mid-$50s, as they really don’t start making good money unless the company is sold in the mid-$60s.”

It is safe to say, therefore, that there’s no jones to sell Dow Jones at Dow Jones.


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