Not so long ago I published here an article And so the battle of The Dow begins describing then upcoming takeover of one of the America’s business crown jewels by media magnate Rupert Murdoch. As the wheels of the business world hardly spin in direction Mr. Murdoch would not anticipate, it is now almost certain, that he will be soon counting this excellent media franchise amongst his very own.

As has been reported few days back, the US$5 billion takeover of Dow Jones & Co has been approved by the company’s board and its future now rest in hands of controlling shareholders, the Bancroft family.

The Bancroft’s, who hold around 64% of the voting stock initially rebuffed the Murdoch’s offer stating their concerns about editorial independence should the takeover go ahead. Lately, however, Bancroft’s appear much less united in their opinion as some of the family members are reportedly changing their minds.

One thing I would like to point out here is Murdoch’s negotiating approach to this deal. At first he seemingly stunned the company owners (and most of the investing world) with an $60 per share offer ie. offering a hefty premium to The Dow’s share price at the time. Since than, however, he dug in and stubbornly resisted all the pressure asking him to raise his offer.

Obviously some lessons to be learnt here from this mega successful and ultra experienced business icon: The big guys know the fair purchase price of a business they understand and are willing to pay it regardless of external conditions. They offer once, they offer big and you won’t see them haggling for “coins�? the way you are used to from market stall owners in Egypt or Persia.

In other words the majority of big guns’ offers are the “take it or leave�? kind. Perhaps you have read about similar tactics employed by the World’s savviest investor Mr. Warren Buffett and now The Dow’s takeover is a prime example, that the super successful media magnate Mr. Rupert Murdoch has been going around his business in this manner for who knows how long. Maybe we should think about this next time we miss out on a great investment just because the price was few cents higher than we intended to pay for it.

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With the upcoming takeover of one of the icons of the American capitalism, the Dow Jones & Co. Inc. I thought it could be a good idea to look into the history a little and remind ourselves about the events at the very beginning of the most important financial market of them all, The New York Stock Exchange.

All started around 1792 when a group of American businessmen agreed on a commissioned trade of securities amongst themselves. Since the consensus was achieved in the lower Manhattan under a buttonwood tree, it was named “The Buttonwood agreement” and initially traded only five securities.

The first agreement lasted until around 1817 when it adopted new set of rules and was named “The New York Stock & Exchange Board�?. As the years passed by and the economy of young American nation grew stronger, the NYSE’s gains in importance and popularity were guaranteed.

However it also experienced its fair share of financial disasters along the way. For instance in 1873 a collaps of one of the major players, the Jay Cooke & Co. caused the market to close for a period of ten days triggering a public outrage.

In 1896, then not-too-significant company named Dow Jones & Co. Inc published in its daily newspaper The Wall Street Journal the first ever Dow Jones Industrial Average Index (DJIA) with initial value of 40.74 (achieved by summing up the value of its twelve component stocks and split by the daily “divisor�? calculated and published by The Journal to this very day; today’s DJIA is composed by the stocks of thirty companies).

The current premises of the NYSE were taken up in 1903 and only few years after that (1906 to be exact) the DJIA closed above the value of 100 points for the first time ever.

The first few decades of twentieth century contained quite a few dark periods marking the history of human kind. Those times indeed left its footprints in the history of financial markets as well. In 1914 the NYSE was closed for the longest time in its history – 4 and half months – due to the havoc and uncertainty surrounding the beginning of World War I.

In the period of than extravagant and roaring twenties came perhaps the darkest days of the NYSE to-date. The stock prices were skyrocketing and large number of people pocketing huge returns on their investments. However, as they had soon learnt, the disaster is always just around the corner, as on October 29, 1929 the DJIA recorded a one day plunge of 11% to 230 points (the year high in September 1929 was around 381 points).

With the crash, the Great Depression was amongst us. The need arose for the creation of Securities and Exchange Commission (SEC) who would “bring the law�? into the very poorly regulated stock market of those days. However not even the existence of SEC managed to bring back much of the lost confidence in stocks within the wide society. And so the record heights of DJIA in 1929 were not to be seen again until the 1960s!

Another black day for the NYSE came in 1987. A drop of 22% in one single day crated by than record trading volume of approximately 500 million shares.

In 1990s US, putting some money into stocks has become a widely practiced wealth creation strategy. The records show, that there were more than 50 million individual owners of stocks trading on the market. Since than, this number has never seized to increase year after year.

As the money was coming, in the value of the DJIA grew accordingly. Between 1995 and 2000 the index rose from 5000 to 10,000 eventually even surpassing the 11,000 points mark. But once again, such a good times could not go on forever and come Spring 2000 peak of 11,700 the index started slowly but surely decline all the way to 7000 points.

Enter the September 11, 2001 attacks forcing the four days closure of the NYSE, the longest one since 1933. Trading was restarted again on September 17 with a record volume of 2.4 billion shares.

Since than there was a number of other significant events effecting the value of the traded stocks. For instance the 2001 strikes in Afganistan, 2002 investigation of the Enron accounts, the WorldCom Chapter 11 filing and various other, still rather fresh setback situations. I believe some more time will need to pass in order for us to be able to place them accurately on the NYSE’s trophy cabinet .

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The takeover of the media industry crown jewel, the Dow Jones & Co. Inc. has slowly progressed to next stage in which the controlling Bancroft family sat at one table with Mr. Murdoch and discussed his $US 5 billion offer face to face.

On top of that, there has been number of reports floating around and suggesting, that another bidding consortium (which could even include Mr. Warren Buffett himself) may possibly join the party at the negotiation table.

Personally, I would not be surprised to see a little more competition trying to seize this excellent opportunity and purchase this symbol of American financial markets and perhaps the capitalism itself.

Just to illustrate the significance of the Dow Jones corporation, consider that its flagship, The Wall Street Journal in 1896 gave birth to Dow Jones Industrial average (name after one of the company founders, the creator of the index Mr. Charles Dow).

As you know the DJIA, is being calculated and published by The Journal until this day and is often used as a measuring stick not only for the NYSE but, into certain degree, also for the overall economical performance of the entire World. So the question is, how do you put value on that?

And only after all the above comes into equation the value of worldwide, de facto monopoly position, which most of the businesses owned by the Dow Jones & Co. Inc. enjoy. Sure the times are getting tougher for them and competition is as fierce as ever, but, in the long run, would anyone backup any notion suggesting the fall of the Dow Jones corp? Or significant decline in readership of The World Street Journal? Somehow I don’t think so .
 
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