History, finances and the dynamics of corporate takeovers are all working against Ron Burkle’s latest attempt at newspaper ownership.
Last month Rupert Murdoch, chairman of News Corp., announced a surprise bid for Dow Jones & Co., publisher of The Wall Street Journal. Last week Yucaipa Cos., the investment fund Burkle founded in 1986, agreed to act as advisor to help the union for Dow Jones employees find a better bid.
While Burkle made a fortune by working with unions to acquire supermarkets, trucking companies and telecom operators, the formula has added up to zero in the publishing industry.
“That strategy hasn’t worked before,” said John Morton, president of Maryland-based Morton Research, a newspaper consultancy. “Whenever a newspaper comes up for sale, if unions are involved, they try to make an overture or find an alternative. But so far, that hasn’t borne any fruit.”
The list of failed union buyouts includes one backed by Burkle. Last year he teamed up with unions to bid on the Philadelphia Inquirer and Philadelphia Daily News from McClatchy Co. In a separate deal without union participation, Burkle tried to buy Tribune Co., publisher of the Los Angeles Times and Chicago Tribune. In both cases, the owners sold to other bidders.
On the financial scorecard, Murdoch’s bid represents a 65 percent premium over Dow Jones’ stock price before the offer. In dollar terms, the Murdoch bid totals to about $5 billion. That sum would come from News Corp.’s cash stash of $7.2 billion, according to its latest quarterly filing.
Instead of a cash-producing media conglomerate, Burkle runs a diversified investment fund. Although he has a personal fortune valued by the Business Journal at $3.4 billion, he would need to marshal support from the pension funds and institutions that back his fund before launching a Dow Jones bid. In addition, Murdoch would buy Dow Jones for strategic reasons, so he could recoup the cost in combination with his other newspapers and TV news operations, including Fox Business Channel, a cable venture scheduled to debut later this year. But Burkle would enter as a financial investor, with his clients demanding solid investment returns despite the declining health of the newspaper sector.
Murdoch’s bid may sound generous, but it’s “not unusual because newspaper companies usually draw a big premium,” said Morton. In better times, such as in 2000 when Tribune bought Times-Mirror Co., the final premium reached more than 90 percent, he added.
Moreover, in a takeover attempt, a first bidder with sufficient financial resources enjoys a “first-mover advantage,” according to an article in the Journal of Finance. Taking all factors into account, Paul Ginocchio, an analyst with Deutsche Bank Securities, has put Murdoch’s chances for success in buying Dow Jones at 75 percent.
A call for comment about Burkle’s strategy to Yucaipa Cos. was not returned.
The Dow Jones union, officially the Independent Association of Publishers’ Employees, opposes Murdoch’s bid for non-financial reasons. “Murdoch has shown a willingness to crush quality and independence, and there is no reason to think he would handle Dow Jones or the Journal any differently,” according to a statement from the union.
