Newspaper industry in crisis? Big-bucks takeovers suggest otherwise

[via the Guild Reporter]

Is the newspaper industry terminal? Apparently not, judging by the recent actions of Rupert Murdoch, Sam Zell and the Thomson family.

Murdoch, whose News Corp. already owns the New York Post, the Fox TV network, MySpace and a host of other media properties in the U.S. and abroad, has made a surprise bid to buy Dow Jones, publisher of The Wall Street Journal and Barron’s, among other ventures. Precisely when Murdoch first made his offer is in some dispute, but just days after the May 1 disclosure of his interest, Toronto-based Thomson Corp. made an equally unexpected bid for Reuters Group PLC. The latter combination, approved by Reuters trustees May 15, creates the world’s largest financial news and data company.

Meanwhile, real estate developer Sam Zell’s apparently successful takeover bid for Tribune Co. is coming under increasing fire for shifting most risks to employees. Teamsters attending Tribune’s annual meeting May 9 questioned the company’s board of directors about various aspects of the deal, noting that Zell’s risk will be minimized by tax breaks and “phantom” stock ownership, while employees will be dragged along for the ride via an employee stock ownership plan that gives them no say in corporate governance.

“This plan is a perversion of what ESOPs were designed to do—namely, to empower workers as owners,” charged Teamsters President Jim Hoffa. “This structure makes the employees shareholders in name only.” The Teamsters represent approximately 2,000 Tribune workers.

Also weighing in against the Tribune deal was consumer rights activist Ralph Nader, who accused Zell of “strip mining” the industry via “an exotically complex transaction.” “How else could Sam Zell put only $315 million of his own money into the pot—most of it a loan, no less—take control of this media conglomerate as chairman of the board and retain the right later to buy 40% of the stock for only $500 million,” he asked.

While the Tribune takeover may have been done on the cheap, there was nothing cheap at all about Murdoch’s bid of $60 a share for Dow Jones—at a time when the stock was trading in the mid-30s. The proferred premium was so rich that many observers viewed it as a preemptive strike to block other would-be bidders, yet it wasn’t enough to sway the Bancroft family, which holds voting control and which rejected the offer—for now. At press time, some family members reportedly were pushing for a meeting with Murdoch, arguing that it wouldn’t hurt to hear him out, and Murdoch was pressing his case with a letter to the Bancrofts assuring them of his good intentions—and offering them a seat on the board on which they already have several representatives.

News that their employer might become a press baron compared by many to Randolph Hearst inflamed the company’s newsroom, with IAPE, The Newspaper Guild-CWA Local 1096, issuing a statement asserting that a News Corp. buyout “would be a direct threat to the prestige, independence and unquestioned integrity of Dow Jones.” Noting the hefty size of Murdoch’s bid, the union added that there’s “only one recourse to make acquisition profitable: gutting the enterprise and slashing the staff that make it the leading financial news organization.”

But Murdoch may not be as interested in turning a profit as in gaining the luster of the Dow Jones brand for a cable financial network he plans to launch later this year. And even with the hefty premium, Dow Jones is being valued at only $5 billion, an amount News Corp—a $70 billion company— reportedly has lying around in retained profits.

Meanwhile, reports that Richard Zannino, Dow Jones’ chief executive, had a breakfast meeting with Murdoch on March 29—nearly two weeks earlier than he had led observers to believe—have already overshadowed the proposed sale. The meeting suggests Dow Jones insiders—including board member David Li, who’s based in Asia—knew about Murdoch’s offer long before it became public, raising a question of whether that knowledge resulted in improper stock trading. The Securities and Exchange Commission has already frozen the accounts of a Hong Kong couple who turned a profit of more than $8 million by flipping Dow Jones stock, and other trades are being investigated.

Less controversial but just as unsettling for employees was Thomson’s successful $17.2 billion bid for Reuters, combining the world’s third and second largest market data companies. The combined news operation —only a small part of the overall operation—is keeping the Reuters name but will be controlled by the Toronto-based Thomson family, which is claiming a 53% stake in the merged entity. Market consensus seemed to be that the combination would be a good fit, adding Reuters’ strengths in sales and trading to Thomson’s base with money managers and investment bankers.

Reuters employees, however, worried that the merger could violate the company’s independence and journalistic integrity—a principle so basic to the company that its constitution bars any one party from holding more than 15% of its shares. Indeed, the Reuters Founders Share Co. holds a “golden share” with which to block anyone trying to obtain more than a 30% ownership stake, but apparently was persuaded that the Thomson acquisition does not violate this rule.

The RFSC’s May 15 decision to accept the Thomson bid also ignored a May 14 letter from a transatlantic alliance of unions representing Reuters employees in the U.S., Canada and the United Kingdom, including the Guild. “If this takeover were to go ahead,” the letter asked, “what guarantees are there that the Thomson family would not in turn sell its 53% stake in Reuters to another group at a future date? We note that Thomson sold The Times [of London] and the Sunday Times to Rupert Murdoch.”

Yet while the Reuters acquisition raises obvious concerns, Peter Szekeley, who chairs its Guild unit, says the issues aren’t as clear-cut as they are at Dow Jones. “It was easy for IAPE to say right away that they opposed the Dow Jones takeover,” he said, “but Thomson isn’t Murdoch and this deal needs a closer look from the standpoint of what it means for Reuters journalism, jobs and labor relations. Until we get that information, all we can do in the New York local is be wary, skeptical and vigilant.”

At Dow Jones, meanwhile, it’s not just IAPE that has challenged Murdoch’s plans: newsroom employees have ignored management requests to stay out of the fray, sending individual letters to members of the Bancroft family encouraging them to stand firm “despite their opportunity to profit tremendously from accepting the offer.” The letter-writing campaign was undertaken despite claims by management—which sat on the story for days, if not weeks—that efforts to influence the Bancrofts would create “the appearance of a conflict of interest.”

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The media's job is to interest the public in the public interest. -John Dewey