Keeping up with the (Dow) Joneses

Rumblings of a Microsoft-Yahoo deal may not have panned out, but in the merger world, the pursuers and pursued are still out in force.

In a flurry of activity last week that some would say defied good business sense, media and entertainment companies and a few troubled Internet portals suddenly became hot acquisition targets.

The financial news service Reuters Group was approached about a takeover by an unnamed company, The Wall Street Journal reported Friday. British music group EMI said it had received a number of takeover inquiries, Reuters reported that same day.

Back in the States, Time Warner Chief Executive Richard Parsons told the Associated Press Friday that several private-equity firms told him they were interested in buying his company's problem child, AOL. To top it all off, rumors that Microsoft was in talks to buy beleaguered Internet portal Yahoo briefly resurfaced.

Of course, earlier in the week, in a move that probably set off all this activity, Dow Jones, which publishes the Journal and a number of other online and print news outlets, said it received a takeover offer from Rupert Murdoch's News Corp. Dow Jones ownership rebuffed the $60-per-share offer.

So why all this takeover talk? Isn't Yahoo supposed to be a sinking ship, AOL a has-been, and traditional music sales a dead-ender? Isn't buying a big media property supposed to be a bad idea in the age of social-networking Web sites and so-called citizen journalism?

Maybe not, if all this wheeling and dealing is any indication. An historic rally on Wall Street has given a number of profitable but slow-growing companies a valuable stock "currency" to make acquisitions and expand their businesses. And the bigger a company is, so the theory goes, the easier it is to squeeze out expenses and compete in a tough market.

In the software industry, it's the rationale Oracle CEO Larry Ellison used to justify his multibillion-dollar spending spree on competitors such as PeopleSoft and Siebel Systems. To Ellison's credit, the high-risk gambit is so far paying off.

Now that bigger-is-better theory is being taken for a spin by media moguls eager to increase their stake on the Internet. And make no mistake, this isn't about print media. With the exception of Dow Jones (which has several successful Web properties), traditional newspaper and magazine companies have been noticeably left out of the hubbub.

Barry Parr, media analyst at Jupiter Research, said the time is ripe for media consolidation as the online market matures and the user growth rate slows, slimming the possibilities for so-called organic growth. "If you are looking for a way to recapture your traditional growth rates in the context of the Internet, acquisitions look mighty attractive," Parr said. "It's also a phenomenon of the booming stock market right now."

"We're going to see more of this. It's the right moment," he added. "Companies whose stock is doing better than the market are going to be in a position to do more acquisitions."

Quick-growth opportunities
Ironically, it wasn't that long ago that many industry experts were arguing that media conglomerates were big, unwieldy entities to be avoided. But most industries careen from consolidation to breakups as market conditions change, said Charles Moldow, a general partner at Foundation Capital and a former mergers and acquisitions banker at Merrill Lynch.

"Companies believe they need scale to compete and they aggregate, and then they conclude that they have locked value that the market doesn't appreciate and they break them apart," Moldow said.

At the moment, companies are looking to buy in order to quickly grow their businesses in a booming Internet market, said Ellen Siminoff, chief executive of search marketing firm Efficient Frontier and a former Yahoo senior vice president of entertainment and small business. "Digital media is real; people are active in it and companies want to have scale," she said. Plus, "transactions usually happen all at the same time...The Google acquisition of DoubleClick may have begot Yahoo's Right Media purchase."

The biggest takeover buzz was over a deal that's least likely to happen. and published articles Friday morning citing anonymous sources saying that Microsoft and Yahoo were in talks to either merge or somehow combine their online assets.

However, the Journal backpedaled in a story hours later, reporting that sources were saying the merger discussions were "no longer active" and that Yahoo was not interested in merging with Microsoft. Representatives from Microsoft and Yahoo declined to comment on the reports.

Featured Video