Dow Jones, News Corp. OK editorial pact

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NEW YORK -- Rupert Murdoch's News Corp. and Dow Jones & Co. continued making progress Tuesday toward a takeover deal, with the sides agreeing on the outlines of editorial independence safeguards for Dow Jones' media brands, which include the flagship Wall Street Journal, sources said.

However, a panel of media analysts and bankers had differing views on whether a full-blown deal, which one observer Tuesday opined could come together as early as this week, would be a coup for News Corp.

The parties have made "significant progress over the past few days" in their deal talks, one source familiar with the situation said. However, some open items remained in the editorial safeguard provisions and other parts of the deal, that person said.

The final price tag for Dow Jones seemed still open as of late Tuesday as two sources said the broad outlines of an editorial independence plan have been worked out, while other issues might still be discussed.

One source said Tuesday that the Bancroft family that controls Dow Jones will only consider a broad deal package once all elements of a deal are worked out. The Dow Jones and News Corp. boards also would have to approve a final takeover deal proposal.

News Corp. has offered $60 per share, or $5 billion, for Dow Jones, and most Wall Street observers expect that price to not need any or much sweetening given its big premium over pre-bid stock price levels.

Overall, the deal talks were described as "fluid" by two sources.

Officials at News Corp., Dow Jones and a representative for the Bancroft family declined comment.

If the Bancroft family agrees to a transaction pact between News Corp. and Dow Jones, it would be "a brilliant deal for Murdoch," John Chachas, managing director of media and telecommunications at Lazard Freres, said here Tuesday at a PricewaterhouseCoopers event.

While he admitted the price News Corp. will have to pay is high, he said: "It's about brands. ... (Murdoch) has proven that he can exploit brands." The Wall Street Journal and other Dow Jones brands could be key in the launch of the Fox business news channel, scheduled for this year.

Meanwhile, Norman Pearlstine, senior adviser for private-equity firm the Carlyle Group, said the value of the Wall Street Journal brand in the Dow Jones deal is often overstated. "There is no business uglier to run than a pan-American newspaper," he said.

He also suggested that the Journal will at best reach break-even and that maybe News Corp.'s Times of London also could avoid future losses, but the real profits are in other Dow Jones units that don't really fit in with News Corp. The real benefit for Murdoch could be that some of the Dow Jones assets can "help in political battles," Pearlstine added.

Former Morgan Stanley entertainment and media analyst Richard Bilotti said News Corp.'s management team has always taken the long-term strategic view on deals. "They are thinking about what (Dow Jones) can be three to four years from now," he said.

Bilotti lauded Murdoch for the "ability to see things through" even amid short-term criticism. He argued, for example, that News Corp. lost about $300 million on the Fox News Channel before it became a strong financial contributor. "Now it is a $5 billion-plus asset," Bilotti said.

Longtime analyst Laura Martin, founder and CEO of Media Metrics Llc., agreed that Murdoch is a visionary, but she argued that 10-year outlooks on acquired assets, particularly in the languishing newspaper business, are too long for investors and most on Wall Street. "The market doesn't have that (long time frame)," she said.

Martin argued that Murdoch is overpaying for Dow Jones and that News Corp. deserves a "sell" rating.

She estimates that News Corp. is destroying 10%-20% of shareholder value by transferring value to Dow Jones investors. An acquisition also will raise the contribution of newspapers to News Corp.'s operating cash flow from 15% to 20%, she added.

Finally, Lawrence Haverty, portfolio manager at Gamco Investors, said his firm is benefiting from a deal either way as it has stakes in Dow Jones and News Corp. "We like (the deal) better as Dow Jones shareholders" but find it good for News Corp. as well, he said.

As benefits to News Corp., he cited an acceleration of the planned Fox business news channel's reach of profitability and his likely ability to revive the Journal in international markets, where, he argued, WSJ "has fallen" in terms of readership and importance.

Bilotti on Tuesday also raised the question of who would run Dow Jones under News Corp. given that Murdoch has often picked an executive with strong skills in certain areas to run acquired assets, such as Sky Italia or DirecTV Group.

However, a News Corp. spokesman said Tuesday that the plan is to retain current Dow Jones management.
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