The Internet-driven transformation of the media industry is sparking a new round of potential megamergers, underscored yesterday by reported efforts to acquire search engine Yahoo Inc. and information service Reuters Group PLC.
Thomson Corp., a financial information services firm in Stamford, Conn., has reportedly approached Reuters about a possible acquisition, while software giant Microsoft Corp. of Redmond, Wash., was rumored to be looking at a takeover of leading Internet search engine Yahoo. The reports come on the heels of the bid by Rupert Murdoch's News Corp. to buy Dow Jones & Co., publisher of The Wall Street Journal.
The potential burst of takeovers is being driven by the same forces that have led to the recent acquisition of newspaper companies such as Tribune Co. of Chicago and Knight Ridder Inc.: the shifting of readers and advertisers to the Internet.
The uptick in merger talk suggests that changes in technology and consumer habits are not only battering traditional media companies but also giving rise to strategic buyers looking to grab a large share of rapidly growing online advertising and revenues, analysts said.
Online advertising is the fasting growing advertising category, projected to grow 18 percent this year, compared with a 2 percent decline in newspaper ad revenue, according to Outsell Inc., a market research firm in Burlingame, Calif.
"There's a gold rush on," said Ken Doctor, media analyst at Outsell. "If you are one of the top two or three players, it allows you to get a big enough audience and command significant ad rates. It can become very lucrative."
These deals could give these brand names even more dominant shares of the search and financial information markets.
Reuters yesterday acknowledged it had been approached about a possible takeover but did not name the company. The Globe and Mail of Toronto reported Thomson as the suitor. A Thomson spokesman declined to comment.
The Journal and New York Post reported that Microsoft might bid for Yahoo, although the Journal later reported that while the two firms were still discussing areas of potential collaboration, merger talks were no longer active. Spokeswomen from both companies declined to comment.
Yahoo's stock price rose 10 percent on the news. The shares of Reuters, a British company, soared 25 percent in London.
The companies being considered for takeover are in some ways different from other media firms, such as Tribune, as they already rely on digital products for a large share of their earnings. While Dow Jones is best known as the publisher of the Journal, about half its earnings come from digital properties, including its Factiva database, analysts said. Reuters's news service accounts for less than 10 percent of the company's earnings; the rest comes from its distribution of financial data.
In both cases, they could be good fits for the potential suitors, analysts said. News Corp. is launching a financial cable television channel, which would benefit from the Journal's content and brand name. Thomson is a leading distributor of financial information; Reuters would allow it to expand offerings and challenge market leader Bloomberg LP.
The turmoil in the broader industry is providing fuel for these and other bids, analysts said. Recently, McClatchy Co. bought Knight Ridder; real estate magnate Sam Zell engineered a takeover of Tribune; and Boston buyout firms Bain Capital and Thomas H. Lee Partners have been bidding for radio broadcaster Clear Channel Communications. Clear Channel directors rejected a revised bid from the firms on Thursday.
Much as the transition to online and wireless technologies is creating winners and losers, it is also creating buyers and sellers, said Jim Rutherfurd, managing director at Veronis Suhler Stevenson Partners LLC, a New York private equity firm.
"People who are sellers are concerned about the changes," Rutherfurd said. "But the changes might not happen overnight, and others see opportunities to buy at the right price to make the transition."
Although the media industry has always been fertile terrain for the mergers and acquisitions market, Rutherfurd said, the current activity is unlike anything he's seen in the past 20 years. Besides disruptive technologies, other factors are playing a role, Rutherfurd and other analysts said.
The amassing of large pools of capital in investment funds has created a new breed of powerful shareholders unwilling to put up with lagging returns, they said. Before the rise of these funds, both Tribune and Knight Ridder would likely have been able to survive the poor performance of their stock.
In addition to lower stock prices that make media firms inviting targets, low interest rates make acquisitions more affordable, said Mark Zandi, chief economist at Moody's Economy.com, a forecasting firm in West Chester, Pa.
"Interest rates are very low, banks are very willing to extend credit, and investors sense an opportunity," Zandi said. "If you want to acquire using debt, the costs are very low."
Robert Gavin can be reached at rgavin@globe.com.
