- The Washington Times - Saturday, August 4, 2007

NEW YORK (AP) — When Rupert Murdoch prevailed this week in his struggle to buy Dow Jones & Co., publisher of the Wall Street Journal, it proved two important points.

One, family control isn’t an absolute guarantee against preventing a sale; and two, it may be too early to conclude that a wave of deal making that has reshaped the U.S. newspaper industry over the past year is over.

Dow Jones was long thought to be immune from an unsolicited takeover attempt because the Bancroft family, descended from the adopted daughter of an early owner of the company, controlled 64 percent of the shareholder vote.

But the widely dispersed clan — which had three dozen family members spread all over the country — proved vulnerable to infighting and dissension, allowing Mr. Murdoch to persuade enough of them to sell, despite objections from others.

Other prominent newspaper companies such as the New York Times Co. and The Washington Post Co. have a far greater degree of family control than Dow Jones did, as does California-based McClatchy Co., owner of the Miami Herald and the third-largest publisher in the country by circulation.

But now that Mr. Murdoch has clinched his prize, other newspaper companies could attract the interest of potential buyers, particularly since the stocks of many of them have been beaten down in recent years over concerns about the steady migration of readers and advertising dollars online.

“For those that want to buy newspapers, this is the time to do it because newspaper stocks are so low,” says Louis Ureneck, chairman of the journalism department at Boston University. “I wouldn’t be surprised if we saw another big play.”

The deal for Dow Jones marks the third time in just over a year that a major U.S. publisher has been forced into a sale, after Knight Ridder Inc. last year and Tribune Co. earlier this year.

For other newspaper companies, the obstacles to a sale are formidable, but not necessarily impassible for all time.

Gannett Co., the McLean-based industry leader and publisher of USA Today, is seen as a well-run operator with less exposure to the large metro markets where papers are facing greater exposure to competition from online sources. However, its current market value of about $12 billion would be a big bite for any investor.

Questions about potential deals often come up about the New York Times Co., which has come under pressure from a dissident investor who, unhappy with the company’s financial returns, wants to see the Sulzberger family’s influence over the company loosened.

The Times’ stock has had a rough time, declining steadily from the high $40s in early 2004 to the low $20s today, cutting its market value by more than half.

But the Times is controlled by a far tighter clan than was the case with the Bancrofts. There are just eight Sulzbergers on a key family trust that holds supervoting shares. The setup allows the family to name most of the board members. The trust also must sign off on any takeover offer.

“The rules of the road are, the Sulzbergers have the votes to do whatever they please,” said Robert Broadwater, managing director of Broadwater & Associates, an investment banking firm focusing on media.

The Sulzbergers are also actively involved in the company — Arthur Sulzberger Jr. is both chairman and publisher of the paper — unlike the Bancrofts, who were often seen as absentee owners.

That point was brought home by Crawford Hill, who wrote a long, impassioned note to other Bancrofts saying the family was paying for its years of passivity. “We never really figured out how to be owners when we needed to most.”

Like the New York Times, The Washington Post Co. also has a highly involved family in control, the Grahams, starting with Donald Graham, the chairman and chief executive officer.

Also, The Washington Post has had tremendous financial success with its fast-growing Kaplan educational business, which is now the largest operating unit in the company and a cushion against weakness at the newspaper. As a result, its stock has held its ground over the past two years, despite steep declines at many of its peers.

The same can’t be said for McClatchy. It was vaulted into the major leagues of newspaper publishing last year with a surprise move to swallow the much larger Knight Ridder, which had been pushed into a sale by restless investors.

The stock has been savaged over the past year, from about $42 a year ago to about $23 over concerns about how the company will digest the big acquisition and the extra debt it took on while also managing a persistent decline in advertising revenues.

McClatchy, however, also has a small, tight and active family group, with much of the supervoting shares that control the company being held by seven family members, four of whom sit on the board.

Rick Edmonds, a media business analyst with the Poynter Institute, a school for journalists in St. Petersburg, Fla., doesn’t see McClatchy, the Times or The Post as being particularly vulnerable right now.

Most newspaper companies outside of Gannett have some measure of family or trust control through two classes of stock, but “not all of those are necessarily forever,” Mr. Edmonds said.

As for Dow Jones, Mr. Broadwater suggested that shifting control from the Bancrofts to Mr. Murdoch will put it under a far greater degree of family control than it had seen in the last 25 years.

“Now you have an individual who owns it who will be more active than the previous owners,” Mr. Broadwater said. “This is more of a return to the old days of newspapering, where you had a proprietor who ran the business and determined the agenda.”



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