One Down (Thomson/Reuters – So Much For The “British” News Agency, Now It Is Going To Be Canadian) And One To Go (News Corp./Dow Jones), And There May Be Many More To Come

And the trend, according to research firm Dealogic, is that the deals keep getting bigger and bigger. Last year there were 448 traditional media deals worth a total of $55.5 billion, and already this year’s 372 deals are worth $93.8 billion, Dealogic says.

The Thomson/Reuters marriage is valued at some $17.2 billion (the value keeps changing every day since around half the deal is for Thomson’s shares and the share price has declined). Management believes the deal will pass the regulators without any disposals necessary and the big question is really how long the regulators will take.

One side effect when the deal is complete is that with it dies the “British” news agency; long live the “Canadian” news agency. What would Baron Reuter (Queen Victoria did him the honor) think of that? Reuter, of course, was a German who immigrated to England, so it’s not as if the “British” News Agency was entirely home-grown – it started with a German flying pigeons between countries on the Continent.

ftm background

There’s A Good Reason Why Reuters and Dow Jones Are In Play For Large Premiums – They Produce The World’s Most Valuable Commodity – No, Not Oil, Gold, Diamonds, Platinum, Or Copper But Rather All-Powerful News On Which Millions Can Be Made Or Lost Every Second
It really should not come as any surprise that Reuters and Dow Jones, two of the biggest producers of the world’s most valuable commodity – the news that drives global financial markets -- should be in play for large premiums. These organizations produce products on which millions of whatever currency you care to name can be made or lost in a matter of seconds. For in the financial markets world, he or she who has the news first is all-powerful; he or she who gets it second is often powerless. It’s really impossible to put a true value on their product.

It is a Fight to the Death : Branson v. Murdoch
When Big Media turns to the courts and the regulators to arbitrate business negotiations it’s clear that the consolidation cycle is turning down.

ProSiebenSat Takeover Approved – Now, On To SBS
The European Commission quickly blessed the €billion buy-out of ProSiebenSat by buy-out behemoths Permira and Kohlberg, Kravis, Roberts (KKR). Quickly, too, will come the merger with SBS Broadcasting and, possibly, more.

Assuming Bertelsmann Does Sell Its Music Publishing Business for Around €2 billion, Where Does It Find the Other €2.5 Billion Necessary To Pay Off Its Bridge Loan For Buying Out Its Minority Shareholder?
July, 2006, is a month the management at German media conglomerate Bertelsmann will not forget in a hurry. Having achieved their goal of buying out its minority shareholder for €4.5 billion it stayed a private company – good news – only a few days later to have its 2004 merger with Sony Music struck down by Europe’s second highest court – bad news because it was thought that business was top of the list to be sold-off to help pay off the buy-out bridge loan.

Media Consolidation is Just a Phase
Viacom’s Board OKs splitting the company into the “growth” business and, well, the rest. The 1990’s are finally over. Media consolidation is dead in the US, but not in Europe.

As a long-time senior media executive with Reuters in Europe, this writer often had to handle the “British” angle when talking with Continental clients who were not always British fans. What usually shut them up was to say that at least Reuters was European and they should take pride that Europe had such an international news organization (we will not get into a discussion about AFP here!), “or would they prefer Reuters to be American?” And that usually was that.

What they didn’t realize was that the question was not just rhetorical. It almost came to be. Back in the days of the Internet boom with Reuters riding high, particularly with its Instinet shares service and also its Greenhouse investment fund (it was a very early investor, for instance, in Silicon Valley and particularly in an upstart company where the boss insisted on running around in an open-neck shirt, jeans and gym shoes and calling himself “chief Yahoo”), and therefore Reuters caught the attention of American investors with shares listed on NASDAQ. At one point the American ownership came close to exceeding 50% and apparently the percentage was high enough that Reuters could have legally “moved” to the US if it had wanted, but it chose not to.

Some years later this writer was at a meeting where the then Reuters CEO Sir Peter Job was asked what he considered to be his biggest mistake. He thought about it for a few seconds and then answered, “Not making Reuters an American company when we had the opportunity to do it.”

Well, now it is going to be at least North American, and the Brits who have been so proud that Reuters is British (even though its ceo and its editor-in-chief are both Americans) are just going to have to suck it in. And make no doubt, the Canadians are really proud to have Reuters as Canadian, and Richard Harrington, Thomson’s president and ceo, makes no bones about that.

He pointed out in an AP interview that the controlling Thomson family is, of course, Canadian and the minority Thomson shareholders are mostly Canadian, so what Canada can be proud of in this deal is that “one of the largest global information providers to the business and financial markets will be of Canadian origin.”

Shares will be listed in Toronto, New York and London and while headquarter duty may be split between Thomson’s office in Stamford, Connecticut and Reuters headquarters in London, the money sits in Canada.

Another transplant, Rupert Murdoch – born Australian but who took out American citizenship to bypass laws that prevented foreigners from having a majority control in television – has not given up on trying to get his hands on Dow Jones. One thing nearly everyone agrees upon is that he has bid far more than the company is really worth, given its current and potential earnings.

But Murdoch has learned over his many years of media business that money speaks louder than words. In the case of the controlling Bancrofts, none of whom are hurting financially, the question for individual family members, particularly the younger ones, is how much is really enough to enjoy the lifestyle they want to enjoy for the rest of their lives? Other family members just plain won’t sell no matter the price because they feel a moral need to protect the family heirloom (The Wall Street Journal) from predators such as Murdoch.

Murdoch has thus started a charm offensive and he has written the family a 1200-word letter. He has offered to safeguard the Journal via a special management-editorial board similar to what he established for The Times of London when he bought that from Thomson (yes, the same Thomson family), he has offered the Bancrofts a seat on the News Corp. board, and he would like a meeting to show what a grand fellow he really is.

He has outside support from Institutional Shareholder Services (ISS), the largest US shareholder advisory group, that the Dow Jones board, at least, should listen to what he has to say. ISS says the board is failing in its fiduciary responsibilities to shareholders by not discussing the bid with News Corp.

Patrick McGunn, ISS executive vice-president, said, “I think the board is violating its fiduciary duty to shareholders if it fails to take this offer very seriously and enter talks with News Corporation. I don’t see how any director could look at the premium (67%) being offered and not open a dialogue.”

The Bancrofts had said that shares they hold representing 52% of the voting power were against Murdoch’s proposal and therefore the board decided it need take no action. Dow Jones operates a dual share system that gives the voting power to the family.

Can Murdoch pull off the deal? Someone who helped him set up his Fox TV empire 20 years ago says it is Murdoch’s to lose. Barry Diller told Reuters, “It is Rupert Murdoch's to lose. You don't have to know Rupert Murdoch to know that he's made an offer and that he's aggressive. The only determinant here is what happens with the high-vote shares and whether or not the high-vote shares will vote to sell."

Thus the Murdoch charm offensive in his letter to the Bancrofts. “Please let me assure you that, first and foremost, I am a newspaper man. I don't apologize for the fact that I have always had strong opinions and strong ideas about newspapers; but I have also always respected the independence and integrity of the news organizations with which I am associated.

“Quite simply, the businesses of Dow Jones, and in particular The Wall Street Journal, represent American journalism at its best. Your record of journalistic independence and integrity is second to none. Any interference -- or even hint of interference -- would break the trust that exists between the paper and its readers, something I am unwilling to countenance. Apart from breaching the public's trust, it would simply be bad business.”

The betting odds in the US on the Bancrofts accepting before the year is out are slightly in Murdoch’s favor at +120 which means bet $100 and if the merger happens you win $120. Not encouraging, for all of Murdoch’s charm and powers of persuasion, that the deal will be done.