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GE, Pearson Face Hurdles in Any Merger With Dow Jones


A potential rival bid to Rupert Murdoch's lofty $5 billion offer to buy Dow Jones will have to surmount major hurdles of its own to succeed, even though investors are warming up to it.

Pearson and General Electric are reportedly considering a joint venture with Dow Jones' controlling Bancroft family, combining leading European and U.S. business news outlets with the top-rated U.S. business news cable network CNBC -- a potential management nightmare.

And while the idea of bolstering CNBC's already profitable business entices some GE shareholders, it will be tough to top the $60 per share bid from Murdoch's News Corp., financial analysts said.

"I don't know how you make it a good investment for GE," said Benchmark publishing industry analyst Ed Atorino. "Who puts up the money?"

GE and Pearson would have to beat a News Corp. offer that values Dow Jones at 16.7 times projected 2007 earnings before interest, tax, depreciation and amortization, according to Citigroup Global Markets estimates. Prices for newspaper group deals have averaged about 10 times EBITDA.

Atorino said GE and Pearson also face the risk of Murdoch boosting his already richly valued offer.

"This is not a financial transaction for News Corp.," Atorino added.

Other Challenges

Bridging the management structures and styles of Pearson's Financial Times, GE's CNBC and Dow Jones' Wall Street Journal would be no less of a challenge, media experts say. Although News Corp. would face hurdles in integrating Dow Jones, a three-way partnership would be that much trickier.

"If you look at who would be involved in a bid, you have the lawyers, the accountants, the advisers and you would multiply that by two," Numis Securities analyst Paul Richards said. "It doesn't just double the complexity ... it makes it very, very difficult indeed."

Industry watchers pointed to difficulties within cable news channel MSNBC, a partnership between GE's NBC Universal media unit and Microsoft Corp. that has lagged rivals such as News Corp.'s Fox News since its inception.

But staving off News Corp., which is building its own business news channel, makes it worthwhile for GE to step in on the Dow Jones bid.

"I have a very high opinion of Pearson and the FT, the Financial Times, and I think it would be one of the better moves that the NBC unit could make," said Mike McGarr, portfolio manager at Becker Capital Management, which manages $2.5 billion in assets and holds GE shares.

Media experts point to a history of uneasy media marriages, from Time Warner's disastrous merger with AOL in 2001 to Viacom Inc.'s separation from broadcaster CBS Corp. last year.

The three-way partnership would create an odd menage, combining the loud, feisty CNBC stock picker Jim Cramer, the buttoned-down culture of the Wall Street Journal and the very British Financial Times, according to Tom Rosenstiel, director of the Project for Excellence in Journalism.

"One analogy I think of is, would a book by Tom Wolfe and John Updike be twice as good as a book by either one of them?" Rosenstiel said. "Or would it be some odd thing that would be less than the sum of its parts?"

Strong Content Source

But operational difficulties aside, GE investors think Dow Jones could boost the conglomerate's prospects in the media sector and provide a strong source of content for CNBC.

"It would probably be looked upon pretty favorably by those of us that think NBC is a good part of GE," said Douglas Ober, chief executive of Adams Express Co., which has $2.2 billion under management and owns GE shares.

Some investors dismissed concerns GE would overpay.

"GE has tended to pay up for things, but I've got to believe that they're going to be rational about this and not get drawn into a bidding war," McGarr said.

They described the $5 billion initial offer by Murdoch as a reasonable value for the publisher of the Wall Street Journal.

Ober added: "That kind of investment is a very reasonable number. Gives NBC some more heft within the GE organization."

GE shares fell 5 cents to close at $38.07 Monday. Dow Jones shares rose 2 cents to $59.03 and News Corp. fell 25 cents, or 1.12 percent, to $22 on the New York Stock Exchange.

Pearson shares closed down 1.26 percent at 862 pence.