DOW JONES TAKES STOCK

By Stacy Perman

When it comes to reporting, the Wall Street Journal knows its business, but when it comes to running its own financial empire, the Journal's owner, Dow Jones & Co., has fallen woefully short. Despite a banner year at the paper, the 115-year-old company announced last month that it will register its first loss since going public 34 years ago. The culprit: Dow Jones Markets, the company's crippled financial-information unit (formerly called Telerate), which has been beaten badly by more sophisticated rivals such as Reuters and Bloomberg. Recently, the company scaled back an ambitious $650 million rescue plan and began firing senior managers at the division, in what Wall Street believes is a prelude to a sale. A report from Goldman Sachs is circulating the Street like a chorus of Christmas carolers.

Dow Jones' troubles surfaced bitterly and publicly earlier this year when dissident members of the normally docile family that controls 45% of the company and 70% of a special class of voting shares began carping about its lackluster returns. While the Dow Jones industrial average has soared, Dow Jones' laggard stock has made it the lowest ranked company in the S&P publishing index. That sent Elisabeth ("Lizzie") Goth, 34, and William ("Billy") Cox III, 42, heirs of Clarence Barron, the 300-lb. patriarch who purchased the company in 1902, looking for advice from investment heavyweights such as Warren Buffett. Their conclusion: it's the management. "Finally, someone within the family started to question things," says Cox, who resigned as managing director of Dow Jones Global Indexes earlier this year.

They weren't the only ones. In February a FORTUNE article documented the unfolding family discord. Vulture investors began buying up stakes and pressing a sale or spin-off of Dow Jones Markets (estimated 1996 sales: $833 million). One investor, Michael Price of Franklin Mutual Advisers, snapped up 6% of Dow Jones and vociferously pushed for a sale of the whole company.

Price is also known as a scalp collector. That's why Dow Jones chairman Peter Kann is seeing his name in print these days. A former Journal reporter and a winner of the Pulitzer Prize, Kann is considered a brilliant journalist but a less than stellar CEO. While the company has seen 9% annual average revenue growth over the past decade, its 1996 earnings of $190 million are only a shade better than those of 1986, $183 million. While Cox calls Kann a "nice guy," he also says, "Kann is not the person who should be leading the company into the 21st century. He's not a good Ceo." That contrasts with the views of other family members who are on the board and who have publicly supported management. Kann's head is not the only one some want to see on a platter. Three weeks ago, the board met, without management, to discuss among other things the continued role of Kann appointee Kenneth Burenga as COO of Dow Jones and CEO of Dow Jones Markets.

Dow Jones (1996 sales: $2.5 billion) bought Telerate, which transmits bond prices, foreign exchange and other data, for $1.6 billion in 1990. It was a logical move but ultimately a poor acquisition. The unit, which last year accounted for 34% of the company's revenues, has been losing market share in the $6 billion financial-information business. "Dow Jones has been fading away," says Jim Dougherty, an analyst with Prudential Securities. "They have not kept up with the investment in technology." Bloomberg's and Reuters' terminals are technologically superior and more flexible, and they offer unique features such as historical data and analytics. And the Internet is a font of information. "There are going to be two levels of service," says Michael Bloomberg, founder and CEO of Bloomberg L.P., who once proposed merging with Dow Jones, "the high end and the low end. There is no room for anything in the middle."

The specter of a sell-off of the division or some broader restructuring has moved Dow Jones stock to its highest price since 1987; last Friday it closed at $54. Several Dow Jones insiders noted Rupert Murdoch's recent visit to Dow Jones headquarters for a meeting with Kann, and both Microsoft's Bill Gates and Buffett have privately expressed interest in the company, believing the Journal and Dow Jones brands are all underleveraged assets. Jettisoning one weak division may not be a panacea. The company will probably take an estimated $800 million write-off. And strategically it will become weaker in electronic distribution, a critical channel in the media industry's future.

Dow Jones may solve part of that strategic problem by taking a second stab at television, another distribution outlet where it has fared badly. The company is expected to announce a deal this week with CNBC under which it would provide Dow Jones' business news to the CNBC and MSNBC cable channels. Earlier this year, Dow Jones launched WBIS+ in New York City with ITT. But ITT forced a sale of the station after that company became the target of a hostile takeover by Hilton Hotels. "Our New York television adventure can only be described as a detour," says Dow Jones spokesman Richard Tofel. "It didn't get us to where we were going." But with its large shareholders showing signs of unrest, wherever the company is going, it had better get there fast.

--Reported by Aixa M. Pascual/New York

With reporting by AIXA M. PASCUAL/NEW YORK