The Murdochs ride out

August 2, 2007

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The Murdochs are on rampage. One force led by father Rupert overpowers the Dow Jones ranch. Meanwhile another raiding party headed by son James makes a lightening raid, and claims ownership of the Amstrad territories. Can anyone stop the Murdoch gang?

Got a bit carried away there. First the surprise news that BSkyB, led by James Murdoch, has acquired Amstrad. Then a less surprising report. The long-running News Corps seige of the Dow Jones organization conducted by Rupert Murdoch has come to an end. The prized asset, The Wall Street Journal, has fallen to the mighty News Corp.

Both are relatively small deals, but each is of a high profile nature.

Before we get too tricksy in linking the two stories, let’s recap on recent events. The Wall Street journal tells it as it sees it, as a delicate dance between suitor and target. Suiter and Target? That’s not very romantic, but the story is well worth a read.

Behind the scenes, however, the media mogul had orchestrated a deal over two years. He quietly gathered intelligence on Dow Jones’s operations and consulted Wall Street figures to plot his moves. An emissary for him talked with family members who had been Dow Jones dissidents a decade ago

The story then rotated around the reluctance of the powerful Bancroft family to sell its shares. The sticking point was not so much a fair price, as the loss of what was reported as the values of independent news reporting esposed by family members.

Meanwhile, at BSkyB

Meanwhile, News Corporations’ subsidiary, BSkyB, announces that it has reached a deal to buy Amstrad. Coincidence, but another victory for the Murdoch family and News Corp. Like father, like son, The offer is a no-nonsense one, valuing Amstrad high enough above the traded value of its shares to deter other would-be bids. This is salient, as prospects for the Amstrad have not been rated highly by analysts.

The agreed figure is some £150 million. But the deal comes with a lot of trappings. Amstrad is the company that Sir Alan Sugar created and led to its current position. That alone would have secured him a niche as one of the UK’s most successful entrepreneurs, but then he starred in his own TV series, The Apprentice.

BSkyB is high-profile in the UK, through the impressive success of its satellite broadcasting, and particularly through its impact on Premier League football. Its deal is generally regarded as a major factor in the rocketing finances, and players mega-contracts. Add to that is a whiff of (Mills & Boon) drama starring a less-favoured offspring of James Murdoch striving to prove himself to patriarchal father Rupert and to the world.

Students of takeover battles can find details further details in earlier posts.

Financial analysts concede that the bid is advantageous for Sir Alan. In strictly financial terms the value to News Corp is less clear.

Some blue sky thinking

Those of us at a distance from the key players have to reply on efforts of imagination, trying to make sense of the available information. This is a nice training exercise for would-be strategic leaders. Can you push yourself beyond first impressions? Can you make sense of otherwise curious aspects of the story as it is presented to you?

Here are two puzzling aspects. Why did Rupert Murdoch make an offer for Dow Jones that is widely beyond what anyone else would have been prepared to pay? Why did James Murdoch likewise make an offer which again is one that is high enough to baffle commentators?

It is likely that there is an explanation that lies beyond the basic short-term numbers involved. The targets possess some value to News Corp that go beyond financial valuation of assets. For Dow Jones and its Wall Street Journal we could investigate whether the figure could be taken as reflecting that mysterious intangible ‘potential value of the brand’. I can’t see that work so well in the case of Amstrad (Sorry, Sir Alan).

In the first case, the intangible may be seen as the WIT price meaning ‘whatever it takes’. Rupert Murdoch wants the Wall Street Journal. A majority of its shares are held by individuals for whom the company is not valued in terms of a stock-market figure. Some ‘offer they can’t refuse’ has to be made. And eventually pragmatism wins over deeply held emotions. The WIT pricing simplifies the deal-making, by removing the possibility of some third party white knight appearing on the battle field.

In the second case, the seller, Sir Alan Sugar is founder of Amstrad. He has never presented himself as bound to it through a deep emotional commitment. Sugar the entrepreneur and market trader has the pragmatism of the entrepreneur. Faced with a deal in a company whose best days seem to be behind it, he acts decisively.

So what was James Murdoch up to? The ‘killer fact’ for me is the reliance that BSkyB has for Amstrad to supply its satellite boxes. With Amstrad stock otherwise rather unattractive, might it be attractive as a nice little move for, say, Richard Branson to make a bid of Amstrad. At very least that would send the price of Amstrad up. Until recently, that would also have been a real concern also because of BSbyB’s dispute with Virgin Mobile.

Is that what happened?

No more than speculation on my part. But it does show some of the considerations those strategic chess players have to be aware of in these corporate battles. And at least it does not reply on disentangling the spin put on the story given to ‘in the know’ financial journalists.


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