Dow Jones Raises Stake In Telerate To 56 Percent With $300 Million Block Purchase

Dow Jones & Co.'s interest in Telerate, Inc. crept over the 50 percent mark with its $300 million acquisition of a five million share block from Forstmann-Leff Associates, Inc. The $57.50/share price shocked some observers, but by paying it, Dow Jones boosted its stake to almost 56 percent of Telerate's common shares.

Despite its valuation of Telerate at $2.7 billion, $57.50 is "not an outrageous price," says Andrew Wallach, an analyst at Drexel Burnham Lambert, Inc. "It's really in the realm of tender offer/ takeover rather than a normal market purchase."

According to Wallach, "the multiple that seems to be paid in a lot of these information business acquisitions is roughly three to three-and-a-half times next year's revenues." Applied in reverse to what Dow Jones paid, however, this formula yields a projected next year's revenue of over $750 million, which is optimistic even for Telerate.

While some, including Wallach, think Dow Jones is inexorably creeping toward full ownership of Telerate, a provision in the Forstmann-Leff agreement may inhibit its ability to do so during the next 12 months. Should Dow initiate a tender offer for the rest of Telerate's shares at more than $57.50, it's obligated to pay the higher price to Forstmann. By the same token, if Dow sells more than ten percent of its holdings at more than $57.50, it has to hand over the balance to Forstmann.

"In hindsight it would have been a great idea for them to buy the whole company at 20," says Wallach.