Dow Jones to buy MarketWatch for $520M
By CBS MarketWatch
Last Update: 1:02 PM ET Nov. 15, 2004
NEW YORK (CBS.MW) -- MarketWatch Inc., which owns the CBS.MarketWatch.com Web site, saw its shares rise 7 percent on Monday, after the company agreed to be bought by Dow Jones & Co. for $520 million.
The two companies said Dow Jones (DJ: news, chart, profile) will pay $18 a share for MarketWatch (MKTW: news, chart, profile) in a deal that allows the parent of the Wall Street Journal to expand its reach into the consumer financial news business.
The deal, announced late Sunday, culminated a month-long bidding war after MarketWatch was approached by several firms indicating interest in its news, advertising sales and licensing businesses.
Viacom (VIA: news, chart, profile) (VIAB: news, chart, profile), which has a roughly 23 percent stake in MarketWatch, the publisher of this report, announced Nov. 4 that it planned on making a bid for the company. Other bidders included New York Times Co. (NYT: news, chart, profile) and Yahoo (YHOO: news, chart, profile), according to media reports. A New York Times spokesperson declined to comment.
If the deal is approved by shareholders, Dow Jones will gain a foothold in the growing Internet content and advertising sales businesses as it takes on rival Reuters (RTRSY: news, chart, profile) (UK:RTR: news, chart, profile), which has been building its own Internet business for the past two years.
"Joining Dow Jones is a great next step for MarketWatch," said Larry Kramer, chairman and chief executive officer of MarketWatch, in a statement. "Being part of one of the most respected media conglomerates in the world gives us a terrific platform to grow our business and compete with the largest media companies."
Peter R. Kann, chairman and CEO of Dow Jones, said, "We welcome our new MarketWatch colleagues with great admiration for the success they have achieved and high anticipation of what we can achieve together to benefit our readers and our customers."
MarketWatch's share price has more than doubled since August, amid a surge in Internet ad sales business and on the company's results. It climbed steadily in recent weeks on speculation that someone might approach the company.
Shares of MarketWatch rose $1.11, or 6.6 percent, to $17.90 in afternoon dealings. Dow Jones added 10 cents to $45.10.
The $18-a-share offer represents 46.5 percent premium to MarketWatch's 60-day trading average.
Deutsche Bank newspaper analyst Paul Ginocchio said in a note to clients on Monday that the acquisition "looks relatively attractive (for Dow Jones) based on MarketWatch's position in financial news, its recent growth rate and compared to other recent deals."
Dow Jones plans to operate MarketWatch separately as a free Web site, in addition to the paid subscription service offered by The Wall Street Journal Online.
John Tinker, analyst with ThinkEquity Partners, said the $18 price level for the deal was higher than some had expected on Wall Street.
"It was a smart move for Dow Jones to pay up," said Tinker, who added that MarketWatch's online advertising business lured bidders in the deal.
He noted a cultural difference between the companies, with Dow Jones known as a more rigid company vs. MarketWatch's reputation as a fast-moving entrepreneurial firm.
"Dow Jones needs MarketWatch's help," he said. "It doesn't have advertising revenue on the Web, and that's where the money is. They need help broadening out, but the question is, Can they handle it?"
Combining the subscription product from the Wall Street Journal with MarketWatch's readership would, "serve advertisers with scale and allow us to do more," said Gordon Crovitz, senior vice president of Dow Jones and president of electronic publishing. "Dow Jones also has an online licensing business and we look forward to increasing our scale considerably with the MarketWatch information services operations such as BigCharts."
Crovitz said MarketWatch's contract to use the CBS brand will end next year, and Dow Jones will not renew it.
He said the company plans to continue MarketWatch's contract to provide financial news to Thomson Financial's (TOC: news, chart, profile) trading terminals.
While analysts cited MarketWatch's Internet advertising business as a big motivator among bidders, Crovitz said the company's radio and TV operations would also fit with Dow Jones.
"We'll continue as many of those as we can," he said. "The weekly TV show will continue with the MarketWatch brand."
Ken Marlin of Marlin & Associates, a New York-based media and technology investment bank, said Dow Jones paid "a big price" for MarketWatch.
"It was substantially higher than what we thought it would be," said Marlin.
With about 23 percent of the company, Viacom's stake in MarketWatch will be worth about $114 million. Pearson Plc owns another 23 percent. "Viacom will make money on this deal," Marlin said.
At the end of October, MarketWatch reported third-quarter net income that more than doubled amid growth in online advertising revenue and integration of its acquisition of Pinnacor.
While the online advertising market is hot, not all companies have benefited. New York-based DoubleClick Inc., a provider of Net advertising services, has put itself on the block.
DoubleClick (DCLK: news, chart, profile) said at the end of October that it has hired Lazard Freres & Co. to explore strategic options to boost the company's shareholder value. DoubleClick said options include a sale of all or part of the company, recapitalization, an extraordinary dividend, a share repurchase or a spinoff.
Dow Jones historically has not been focused on the ad-sales supported Internet business. Its major assets include the Wall Street Journal and the subscription Web site WSJ.com, Barron's magazine and Barron's online, the Dow Jones Newswires and Ottaway Community Newspapers.
MarketWatch's two largest investors are Viacom and Pearson (PSO: news, chart, profile) (UK:PSON: news, chart, profile), parent of the Financial Times Group. Each owns about 23 percent. Spokespeople for both Pearson and Viacom did not respond to requests for comment.
MarketWatch, founded in 1997, operates two Web sites, CBS.MarketWatch.com and BigCharts.com. MarketWatch also produces the syndicated CBS MarketWatch Weekend program and airs financial reports over the CBS television network and the MarketWatch Radio Network.
The MarketWatch Information Services group licenses market news, data, investment analysis tools and other online applications to financial services firms, media companies, wireless carriers and Internet service providers.
It is expected that the acquisition will be completed in the first quarter of 2005. Dow Jones sees the acquisition costing about 5 cents per share in its 2005 earnings per share but says it's likely to add to its 2006 bottom line.
A founder of MarketWatch in 1997, Viacom's initial investment comprised of $50 million in advertising and promotion for equity, including the licensing of the CBS brand. When it went public in 1999 at $17 per share, MarketWatch was jointly owned by CBS and Data Broadcasting.
On May 5, 2000, MarketWatch sold 1.1 million shares to DBC for $43 million in cash and another 1.1 million shares to CBS for $13 million in cash and $30 million in rate card advertising and promotion.
In January 2001, an affiliate of Pearson acquired DBC's 34.1 percent stake in the company. |
