Dow Jones said its board had received the offer from News Corp. to buy the company at $60 a share, either in cash or a combination of cash and News Corp. stock. News of the offer, which was first reported on CNBC, sent Dow Jones' shares soaring, and also lifted those of other newspaper publishers.
However Dow Jones said later Tuesday that the Bancroft family, the company's controlling shareholders, intended to vote shares representing just over 50 percent of the voting power of Dow Jones against the deal.
That put the ball back in Murdoch's court, leaving open the possibility that he could raise his offer, or that other bidders for the company could possibly emerge.
"Dow Jones is so attractive to News Corp. for a couple of reasons: Because the Wall Street Journal is a subscription-based Web site, it would help News Corp. to beef up its online ad revenues, and also because News Corp. is about to launch its Fox Business News channel, buying Dow Jones would give it a number of different experts and financial information it could use on that channel," says CBS News business reporter Alexis Christoforous.
The union representing Dow Jones employees, the Independent Association of Publishers' Employees, was harshly critical of the prospect of being owned by Murdoch, and issued a statement saying that Murdoch's bid was opposed by the staff "from top to bottom."
"Mr. Murdoch has shown a willingness to crush quality and independence, and there is no reason to think he would handle Dow Jones or The Journal any differently," the union said. "Despite our differences of opinion with current management, we strongly encourage the Bancrofts to continue to stand up for the institution's independence, and to walk away from this offer."
News Corp. released a short statement confirming the offer and characterizing it as "friendly." A spokesman for Dow Jones said the company had no other comment beyond its statement.
Shares of Dow Jones initially surged almost 60 percent in late morning trading after the financial news network CNBC reported on the takeover bid. That led to a trading halt that was lifted after Dow Jones confirmed details of the offer.
Dow Jones' shares shot up $20.95, or 58 percent, to close at $57.28 in very heavy volume on the New York Stock Exchange after reaching as high as $58.47. They had traded in a 52-week range of $32.16 to $40.08 before Tuesday's news.
Like other newspaper publishers, Dow Jones' shares have been beaten down over the past few years amid sluggish advertising and rapidly changing media consumption habits as more readers and advertising dollars move to the Internet.
But that hasn't prevented an unprecedented level of acquisition activity in the industry. Earlier this month Tribune Co. agreed to go private in an $8 billion deal led by real estate investor Sam Zell, and last year McClatchy Co. acquried what was then the second-largest newspaper publisher in the country, Knight Ridder Inc., following a shareholder revolt.
Also, the New York Times Co., which like Dow Jones and several other newspaper companies is controlled by a family through a special class of shares, is facing investor unrest over its own sluggish financial performance. Last week shareholders withheld 42 percent of their votes for directors, a public rebuke to the Sulzberger family, which controls the company.
Shares of McClatchy gained 58 cents, or 2 percent, to close at $29.48 on the NYSE. Shares of Washington Post Co., another publisher with two classes of shares, gained $21.30, or 2.9 percent, to close at $765.30 on the NYSE. New York Times's stock gained $1.18, or 5 percent, to finish at $24.58 on the NYSE.
News Corp. started out in the newspaper business and still owns a large number of papers, largely in the United Kingdom and Australia, including The Sun tabloid in England, The Times of London and the New York Post.
Reducing the number of business news outlets is "very, very troubling," Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors, told CBS News.
"A News Corp.-Dow Jones deal is sure to be met with lots of raised eyebrows, certainly from federal regulators, and I would imagine if Dow Jones were to accept and a deal were to happen, that both companies would probably have to sell off some assets in order to get the green light," says Christoforous.
The company is now a major global media conglomerate and owns the Fox broadcast network, Fox News Channel, MySpace, the Twentieth Century Fox studio and satellite broadcasters in Europe and Asia.
News Corp., which has a market value of about $70 billion, could easily afford the price it is offering for Dow Jones. The company had $5.4 billion in cash on its balance sheet at the end of the year, and could readily raise more through borrowings. Fitch Ratings, a credit rating firm, said that even if News Corp. funded the $5 billion purchase price entirely with debt that it wouldn't affect the company's debt rating.
In addition to The Wall Street Journal, Dow Jones also publishes Dow Jones Newswires, Barron's, several leading market indicators including the Dow Jones industrial average and a group of community newspapers.