Why the GE-Pearson-Dow Jones Deal is Unlikely to Happen

I'm trying to work out how the GE-Pearson deal for Dow Jones, being mooted in both the WSJ and the FT today, could possibly work.

According to the WSJ, neither GE nor Pearson has much interest in injecting much in the way of cash into the proposed joint venture. GE would instead contribute CNBC, while Pearson would hand over the FT Group. Both of which are valuable properties – but those valuable properties aren't going to end up even partially in the hands of Dow Jones shareholders, who will need cash to give up their shares.

As a result, the new joint venture is going to have to borrow the best part of $4 billion to pay DJ shareholders – and if today's Dow Jones doesn't have enough income to cover the interest payments, then they'll have to come out of the profits of CNBC and the FT Group.

In other words, the deal would probably mean lower profits for both GE and Pearson going forwards – a prospect which neither company is likely to relish. To be sure, there's an argument that the increase in value from owning the Wall Street Journal and Dow Jones's other assets would make up for the lower profits. But GE and Pearson don't generally think like that.

What's more, the crucial question of editorial control over the WSJ would still remain. If it remains a headless beast with no controlling shareholder with the ability to execute a real vision, it will continue on its slow yet inexorable decline. But that seems to be exactly where the Bancrofts are headed.

In order for the deal to work, then, there would have to be a lot of trust involved: the way I see it, both the Bancrofts and GE would have to trust Pearson to run the Journal effectively, and allow Pearson to have real control over the paper. That's unlikely, not least because Pearson has never really demonstrated its ability to run a newspaper. Rupert Murdoch has newsprint in his veins. Pearson, not so much.