Link This | Email This | Blog This | Comments (1)

Tom Steinert-Threlkeld

Charles and Jim Get It Done

Congratulations, Charles and Jim. You got the deal done this time. The key, as always: satisfying shareholders — the other owners of the enterprise.

This is a lesson Rupert Murdoch has learned well (and Donald Rumsfeld never will get). Don’t try to get the mission accomplished on the cheap. Pay what the asset is worth — or even a bit more, if you really want to own it.

When his News Corp. agreed nearly two years ago to pay $580 million for Intermix Media, eyebrows went up about Murdoch’s perspicacity. This was a guy who had largely sat out the digital revolution. And then he goes and pays out the seeming kazoo for Intermix. The attraction: MySpace.com, which was virtually unknown — except to the 18-34 set, which loved it. From nowhere, it had become the dominant “social-networking” site and the fifth-most-visited Web site overall by the summer of 2005. So what if the entire category of community sites generated just $33 million in advertising revenue from June 2004-June 2005, according to Nielsen/NetRatings?

Then, in mid-April and leaked yesterday, Murdoch strikes again: He agrees to pay $60 per share, or $5 billion, for Dow Jones, the publisher he’s coveted unabashedly for a long time — publisher of The Wall Street Journal, which has been buffeted in print by the competition from the Internet, from television and other media. It whacked back its famed page width, cut the troop count and found the strength to allow advertisements on the cover of each section, including the theretofore sacrosanct front page.

Now, Murdoch may still get rejected. Competitor Bloomberg News reported that a majority of votes among shareholders were lining up against the News Corp. bid. There’s still concern that the Australian will bring three-word heds, sensationalism and other no-nos to the pinnacle of American financial journalism.

The shareholders may want to fall in with a more august name, such as The New York Times. No matter that the Journal and Times frequently throw editorial brickbats at each other: There’s still a fundamental cross-understanding of what serious reporting and commentary entails.

How does this relate back to Charles and Jim Dolan and their seemingly now-successful run at buying out other investors in Cablevision Systems, the New York-area collection of cable systems and landmarks such as Madison Square Garden, Radio City Music Hall, the New York Knicks and the New York Rangers?

Murdoch, right out of the box, was willing to raise the ante for Dow Jones, paying a premium of 67% over the going price of what had been considered a distressed stock. Clearly, he was trying to scare away rivals. Clearly, he’s ready and willing to put in more, if need be.

Murdoch is doing what really astute businessmen still do: Look at the long-term. Just like with Intermix and MySpace, he sees Dow Jones being at the center of the shift to digital media. The Wall Street Journal, Barron’s and the wire service of the Dow Jones are great creators of content that can’t be easily reproduced. That will still sell in the digital world. Indeed, it will be more valuable if a lot of metropolitan dailies fall by the wayside or become shadows of their former reporting selves.

And yes, he can use the resources to back up the launch of his Fox Business Channel. Maybe someday, cable and satellite subscribers will be offered replated versions of the newspaper — the Fox Business Journal — as part of their monthly video services subscription.

The Dolans, by contrast to Murdoch, started off two years ago with an offer to buy out other investors that worked out to $21 a share for Cablevision’s cable operations and included shares in a spinoff that would hold other assets, such as Madison Square Garden. The Dolans figured the combination worked out to a 25% premium over the $26.87 that shares in the company then went for. A two-person panel representing shareholders’ interests rejected the offer.

That led to a $3 billion special dividend, which the Dolans then tried to use to finance another offer, which came in at $30 per share. That, too, was rejected.

Now, unlike Murdoch, the Dolans didn’t have the financial wherewithal to start with a stunning premium. It was limited by bank covenants on how much debt it could take on to finance a purchase. So, only this week, when it said it would sell off a couple of regional sports networks to Comcast, did Charles and Jim thread the needle that sewed up the deal. The winning price? It looks like $36.26 per share, or about a 52% premium — according to Dow Jones’ Wall Street Journal — to the $23.93 the stock traded at Oct. 8, just before the Dolans’ first bid.

But all cylinders are go right now at Cablevision. The company has industry-leading penetration of phone service in its markets, sells 30-mbps Internet access at a fraction of what its head-on new rival (Verizon) does in its New York-area markets, its basic-video subscriptions are rising and it continues to find ways — like selling international programming packages of channels and international $20-per-month packages of voice calls — that amount to gravy for its fundamental two-way entertainment and information network.

Indeed, the Dolans still seem to be getting the deal done — arguably — on the cheap, at least compared to Murdoch. For $10.6 billion, they’re gaining complete control of a company with $5.9 billion in annual revenue and $1.9 billion of cash flow. Murdoch will end up paying more than one-half of that for a company, Dow Jones, with $1.8 billion in annual revenue (less than one-third that of Cablevision) and $245.2 million in cash flow (or about one-eighth of Cablevision’s).

The good thing about the Dolans’ penny-watching?

Even if they put shareholders through the wringer, they still got the deal done.

Cheap.

Congrats.