Family Affair: Tribune, Cablevision, Dow Jones
The humorist Erma Bombeck once said “You hear a lot of dialogue on the death of the American family. Families aren’t dying. They’re merging into big conglomerates.”
Looking at some of the biggest corporate acquisitions completed (or in the works) so far this year –, and the power of a few families in those transactions (especially those holding alternate classes of shares with special voting rights ) – her sentiment may have been more accurate than she intended.
First there was Tribune Co., the countries 3rd largest newspaper company. It sold to Sam Zell but only after the Chandler family, whose trusts controlled more than 20% of the stock, initiated a strategic review and pushed for its sale.
Now there are two more multi billion dollar sales in discussion, or on the grapevine, where a single family will play a major role:
1. The Offer:
Today, the Wall Street Journal reported News Corp (Fox, MySpace etc) made a friendly offer of approximately $5billion to acquire Dow Jones, the publisher of the Wall Street Journal, Barrons, MarketWatch and owner of other financial-information services. The offer constituted a 67% premium over market value (the stock jumped more than 50% to $56.20 a share.
The deal, even at a premium, could be a valuable addition to News Corps product portfolio. Based on 2006 revenue, the addition would increase News Corp. newspaper and magazine revenue by a $1b/yr to over $6b (approximately 20% gain). The Marketwatch property would also provide another news channel to be added to the new MySpace news offerings. Given the troubled state of the publishing industry, one has to believe that Rupert Murdoch and his team at News Corp see significant value both in combining Dow Jones business news with Fox TV news properties, and also in the online components of the deal (both those already online, and those that could be).
The Family behind the Scenes:
The Bancroft family holds 24.7% of the outstanding shares of Dow Jones. The voting rights of those shares give them control 64.2% of the company. So far, the family has rebuffed the offer. That may be because they aren’t’ interested in selling but that is unlikely. Since 1986 the family has reduced it’s holdings by more than 50%. More likely is the theory that the rejection is gamesmanship to further drive the price. Speculation was that no deal would be considered below the $60/share Hammer Price (named after a Bancroft family lawyer who years ago turned away offers from the Washington Post and New York Times for being too low). News Corp has hit that number – so the question is how much further they will go.
2. The Rumor:
Today there were also reports that Cablevision Systems, which also owns Madison Square Garden, the New York Knicks, Rangers and Radio City Music Hall, was close to reaching a deal to privatize the company for upwards of $10 billion. While I don’t like to comment on rumors there’s substantial buzz that this transaction will happen.
Cablevision, along with the other cable companies, have been punished in the markets for heavy spending over the past decade to upgrade their infrastructure (Cablevision has more than $12b in debt) Now, those expenses are behind them, debt load notwithstanding, and the infrastructure upgrades are starting to pay off. The stock prices have yet to adjust, however. They are still trading relatively low.
Cablevision has a lead on Comcast and its other competitors in rolling out bundled Internet, TV and phone services. The company is also generating a lot of cash flow. Speaking of the situation to the Wall Street Journal, analyst Craig Moffett said “Every cable company in America is going to generate so much free cash flow, none of them are going to remain in the public-equity markets unless their multiples expand dramatically”
The Family Behind the Scenes:
The offers to privatize the company are not coming from outsiders. They are coming from insiders: the Dolan family. Charles Dolan founded Cablevision and is currently its chairman. James Dolan, his son, is the company’s CEO. Together, they and their family own 22.5% of the Company stock, and 74% of the voting rights.
Unlike with Dow Jones, or Tribune Co, the Dolan family can’t simply vote their shares. In their case, as “interested parties” in the transaction, the decision to approve or deny their offer will fall on a two-member committee of the Company’s board tasked with deciding if the offer is in the interests of the majority of shareholders.
Whether that committee approves this transaction or not, I doubt the Dolan’s will stop trying to buy. Every offer they make is a positive validation of their belief in the company’s future, and that alone has value – to them and the rest of the shareholders.
