Dow Jones & Co., publisher of the Wall Street Journal, said yesterday it is part of an investor group offering $112 million to acquire the Des Moines Register & Tribune Co., a closely held company that publishes the Des Moines Register.
Dow Jones said the investor group is offering $100 a share, about three times the recent market value of the company's stock, which is controlled by the Cowles family. Dow Jones said it would acquire 50 percent of the voting shares of the company, and the remainder would be acquired by Iowa investors, including two former Dow Jones employes: Des Moines Register President Michael Gartner, a former Wall Street Journal editor, and Register Publisher Gary Gerlach, a former writer with the National Observer, a Dow Jones publication closed in 1977.
Analysts, who expressed surprise at the announcement, said the move represents a change in strategy for Dow Jones, which previously has acquired small, profitable newspapers through its Ottaway Newspapers Inc. subsidiary. The Des Moines Register is Iowa's largest newspaper, with circulation of 240,000 daily and 400,000 Sunday, and it has improved its financial performance during the first nine months of this year. But it has been fighting declining circulation, unpredictable financial performance that included a loss of $816,000 in 1982, and operating margins far below those of other newspaper companies.
"This is really not that far out of line with what we have done in the past, because this is a great newspaper, and that is the business we know," said Dow Jones spokesman Larry Armour. "It is a larger newspaper acquisition than we have made and, to that extent, it is a little out of keeping with what we have done, but size is not a barrier in this case."
Analysts also said that the controversial nature of the takeover bid is unusual for Dow Jones. One investment banker said David Kruidenier, Register & Tribune Co. chairman and chief executive officer, did not find out about the bid until late Friday afternoon, was very upset about the offer, and viewed it as an attempt to make a hostile acquisition of a private company.
Kruidenier, who was not available for comment, is one of five men who control a voting trust set up in 1978 that controls 52.7 percent of the Register's voting stock. Any successful bidder for the Des Moines company presumably would have to win approval of the trust.
After receiving the offer at a board meeting on Monday, Des Moines Register officials agreed to submit it to the investment banking firm of First Boston Corp. for evaluation, sources said.
In addition to the Des Moines Register newspaper, the Des Moines Register & Tribune Co. owns small newspapers in Jackson, Tenn., Independence and Indianola, Iowa, the NBC television affiliate in Honolulu, the ABC television affililate in Moline, Ill., two radio stations in Madison, Wis., two radio stations in Portland, Ore., and 14.3 percent of Cowles Media Co., publisher of the Minneapolis Star & Tribune newspaper.
Analysts generally agreed that, despite the Des Moines company's weak operating margins, the $112 million offer was on the low side, representing a good financial opportunity for Dow Jones, particularly if recent operating improvements at the Des Moines company continue. They also noted that the purchasers could sell some of the other properties and hold the newspaper to help finance the deal, although the debt on some of the properties might make a sale difficult. Moreover, they pointed out that the Register's 14.3 percent stake in Cowles Media might be worth as much as $40 million to $50 million if that company were sold.
John Morton, a newspaper analyst with Lynch, Jones & Ryan, said the Des Moines newspaper has been losing circulation in a market that is economically depressed by low farm income. "This price is reasonable but certainly not extravagant," Morton said. "I suspect Dow Jones views the price as low enough that the prospects for profit improvement that have already started showing up this year make it worth their while to make the acquisition."
One member of the Cowles family said no decision will be made until First Boston analyzes the offer and issues its opinion on the bid's fairness to shareholders. However, he indicated that many family members would be anxious to sell their stock for $100 a share.
Revenue for the first nine months was $70.6 million and net income was $3.3 million, versus revenue of $64.2 million and operating earnings of $939,000 during the same period last year, Morton said. The company reported a $3 million gain on the sale of assets during the first nine months of 1983, Morton said, making net income for the period $3.9 million.
During the first nine months of 1984, revenue increased about 10 percent while operating expenses were up only 5.7 percent, indicating continued improvement in margins since the company folded its afternoon newspaper in 1982.