WSJ staff should thank Murdoch for saving what was becoming a stale publication. Murdoch Wins His Bid for Dow Jones
Bancroft Family Agrees
To $5 Billion Offer
After Deal on Fees
By SARAH ELLISON and MATTHEW KARNITSCHNIG - WSJ
August 1, 2007 12:13 p.m.
A century of Bancroft-family ownership at Dow Jones & Co. is over.
Rupert Murdoch's News Corp. sealed a $5 billion agreement to purchase the publisher of The Wall Street Journal after three months of drama in the controlling family and public debate about journalistic values.
One of the oldest and best-known franchises in the newspaper industry, beset in recent years by business pressures, now enters a new era as part of a world-wide media conglomerate. The 76-year-old Mr. Murdoch, whose properties range from the Fox television network to the Times of London, negotiated hard to win the paper he long coveted. He has promised to invest more in Dow Jones journalism.
The Bancrofts worried about protecting the reputation of the Journal, the nation's second-largest newspaper. They feared Mr. Murdoch would meddle in the paper's editorial affairs and import the brand of sensationalist journalism found in some of his properties such as the New York Post. Some Bancrofts sought other buyers.
But ultimately, Mr. Murdoch's $60-a-share bid -- a 67% premium above Dow Jones's share price when it became public -- was the only serious offer on the table. Key family members, spurred by Dow Jones's board and advisers, decided they had no choice.
"On the one hand it is quite sad, but on the other it was the only reasonable thing to do," said Elisabeth Goth Chelberg, a Bancroft family member who unsuccessfully tried a decade ago to get the family more involved in management. "Now I look forward to a better Dow Jones. It's going to have more money and a world presence and all of the things that it could have and should have had but didn't."
Opponents of the deal called it a dark day for journalism. Leslie Hill, a family member who opposed the deal, resigned as a Dow Jones director late Tuesday afternoon. In a letter to the board, she conceded the deal was a good one in financial terms, but said it failed to outweigh "the loss of an independent global news organization with unmatched credibility and integrity."
In an increasingly pinched landscape for newspaper companies, the alternative to selling was a future fraught with risk -- in particular, that deep cost cuts would be needed to prop up the stock price and make up for dwindling advertising.
For every person who argued that the News Corp. takeover threatens Dow Jones's reputation for quality, someone else insisted that Mr. Murdoch's deep pockets and strategic know-how could turn around its prospects. Mr. Murdoch said Tuesday in an interview that he might add four pages of news a day to the Journal.
Family's Attention
"The money got [the family's] attention and enforced their consideration of reality," said Peter Kreisky, a media consultant. "It focused the minds of the family and the board on how difficult it would be to maintain the newspaper in the long term as an independent entity."
The company's offer received support from Bancroft family members holding about 37% of Dow Jones's voting power, more than half of the family's total voting stake of 64.2%. When added to the 29% of Dow Jones's voting stock held by public shareholders -- most of which is expected to go in News Corp.'s favor -- that support gives Mr. Murdoch enough to win a full shareholder vote comfortably. The vote is likely to be held later this year.
News Corp.'s board signed off on the deal at a brief late-afternoon meeting. After the approval, top executives and advisers broke out glasses for a toast. They were served an Australian Shiraz.
The Bancroft family has controlled Dow Jones since 1902. While Dow Jones accounts for less than half the family's fortune of roughly $2.5 billion, the company had long been the Bancrofts' source of pride and prestige. Dow Jones was also the main glue holding together the family, which today consists of nearly three dozen adult members scattered across the globe. Some deliberated on the offer from vacation destinations around the world, including China, Spain, the Austrian Alps and waters off the coast of Corsica.
Their bonds were tested during the debate over the deal. Cousins and siblings were pitted against one another. Parents fought their children.
In the days leading up to the deal, the stress was severe. Just hours before a Monday deadline for the family to vote on the transaction, William Cox Jr., the only living Bancroft who spent his entire career at the company, went into a diabetic shock. He was briefly admitted to a hospital in Massachusetts, where he summers on Nantucket, before returning home, according to relatives.
The final vote tally followed a last-minute scramble by Dow Jones's board and the family's advisers to win over holdouts. Most of the family's shares are held in a series of trusts. News Corp. had won support from shareholders owning only about 25% of voting power by Monday afternoon, shortly before a deadline for votes set by the family's adviser. That crept up to 28% by Monday evening and then topped 30% Tuesday morning, as a collection of small trusts threw their support behind the deal.
M. Peter McPherson, Dow Jones's nonexecutive chairman, personally called resistant family trustees in Boston and Denver to remind them of the risks they were taking in opposing the deal, according a person who was briefed on the calls.
The shareholder making a decisive swing was a group of Bancroft family trusts overseen by a Denver law firm holding 9.1% of Dow Jones's voting shares. The firm, Holme Roberts & Owen, had been holding out for a higher offer from News Corp. -- a request repeatedly rejected by Mr. Murdoch. The Denver trusts pushed other Bancroft family trusts to hold out for more money, at least for the holders of Class B supervoting shares. These shares, which have 10 times the voting power of Class A shares, are mostly held by the Bancrofts. But when some Boston-based trusts consented to a News Corp. deal late Monday, the Denver trustees lost much of their bargaining power.
Dow Jones's board had rejected the request for a higher price for Class B shareholders. Instead, what emerged from the talks was a deal under which Dow Jones agreed to pay the family's legal and banking bills. News Corp. will assume these liabilities when it buys Dow Jones. The family's fees, to be paid to firms including Merrill Lynch, Morgan Stanley and the law firms Hemenway & Barnes and Wachtell, Lipton, Rosen & Katz, could total at least $30 million, according to people familiar with the situation. That figure doesn't include fees incurred by the Dow Jones board, which had its own advisers.
The payment serves as a modest sweetener for the Bancrofts. When spread out over the family's 16.5 million Class B shares, the $30 million equals an additional $1.81 a share, a roughly 3% increase for the family. Family members would otherwise have had to bear these fees out of their own pockets, effectively bringing their take below $60 a share.
James H. Ottaway, whose family controls 7% of Dow Jones's voting power, called the fees "outrageous." In a statement, the outspoken opponent of a News Corp. deal said: "It is ironic indeed for the Bancroft family to have to pay 30 shekels of silver to their investment bankers, and 30 shekels of gold to their corporate lawyers, for scaring some of them into betraying their 105-year family loyalty to Dow Jones independence." (See full statement.)
Division of the spoils among the advisers promises to create another fight. Merrill Lynch is expecting to receive an $18.5 million fee, according to a person familiar with its plans. Wachtell Lipton's hoped-for fee is expected to be somewhere near $10 million, said one family member, with a host of other fees for a group of lawyers and bankers advising various Bancroft branches.
Christopher Bancroft, one of the most outspoken family opponents of a deal, said that his fiduciary responsibilities required him to vote against any deal not in the best interests of the family and the company. He has called the offer a bad deal for Dow Jones, arguing it undervalues the company's potential. "As a trustee, I could not roll over," he said. Mr. Bancroft, a Dow Jones board member, didn't attend the board meeting to approve the deal.
In an effort to sweeten his victory, Mr. Murdoch telephoned Mr. Bancroft, according to people familiar with the matter. During the call, Mr. Bancroft agreed to abstain from voting on the family's biggest trust -- the so-called Article 3 trust with 13.2% voting power -- in return for written assurance that News Corp. would pay for all family expenses, including personal attorney fees for Mr. Bancroft and other family members. But Dow Jones's board later refused to endorse the proposal, and it appeared that trust rules wouldn't allow him to abstain.
Delicate Situation
Mr. Bancroft's cousin, Jane Cox MacElree, who also opposed the deal, faced a delicate situation because she was a trustee of some trusts whose beneficiaries favored the deal. Ms. MacElree ended up resigning from some trusts -- deferring to her relatives and shielding herself against potential liability -- while voting the Class B shares she owned against the deal.
Some on Wall Street were surprised that the family wasn't able to squeeze out a higher bid from Mr. Murdoch. By the rituals of Wall Street deal making, a buyer's first offer is almost never the final price agreed to in a transaction -- although Mr. Murdoch's first offer in this case represented an unusually generous premium.
Mr. Murdoch was able to hold his ground because he faced no serious rival -- although some of the nation's largest corporations and wealthiest men took a look over the past three months. Billionaire investor Warren Buffett and Microsoft Corp. founder Bill Gates were approached by a family representative to gauge their interest. Both declined to bid.
Several big companies tried to join together to meet the $60 bid, including General Electric Co., which at various points attempted to form a group with Microsoft, IAC/InterActiveCorp's Barry Diller, and Pearson PLC, owner of the Financial Times. Pearson weighed a separate plan, under which it would have contributed the Financial Times to Dow Jones in exchange for stock, according to a person familiar with the situation. But none of these arrangements got off the ground.
Nor did efforts by the union that represents some of Dow Jones's employees to join forces with a California supermarket magnate get much traction. Internet entrepreneur Brad Greenspan tried to put together investors, but fell short of making an offer for the whole company.
WSJ's Dennis Berman comments on whether the Journal's credibility can be maintained, and how the Bancroft family got caught up in the Wall Street deal machine.
Even some who had initially declared firm opposition to the bid softened over time. On the weekend of July 21-22, Bancroft family member Martha Robes hosted former Dow Jones chairman and CEO Peter R. Kann and his family at her house in Maine to celebrate Mr. Kann's retirement. At the gathering, Ms. Robes and her family gave Mr. Kann a handmade green wooden rowboat named "Joy" and a puzzle that depicts various aspects of his life, including a newspaper, a typewriter and a golf cart, according to people familiar with the matter. (Mr. Kann famously crashed a golf cart at a Dow Jones retreat years ago.)
At the gathering, these people say, Mr. Kann, who had been a long-time champion of Dow Jones's independence, told attendees that given the family's divisions, he could see the arguments for a deal with Mr. Murdoch. Some family members saw his comments as permission to vote for the deal, these people said.
Other family members exchanged impassioned views by email and phone about missed opportunities and the family's shortcomings. One supporter of a deal, Crawford Hill, told his relatives in a nearly 4,000-word email that it was time for "reality check."
In a statement early Wednesday, Dow Jones said it expects the deal to close in the fourth quarter, but didn't give a date for the shareholder vote. Mr. Murdoch's advisers suggest shareholder approval is a fait accompli. With family members contributing about 37% voting power to support the deal, News Corp. must still win over the remaining shareholders, who control 29% of Dow Jones's voting power.
News Corp. anticipates that about 80% of these shareholders will vote for the deal, meaning another 23% in support of the transaction -- or about 60% approval overall.
That leaves a slim opportunity for the remaining shareholders to threaten to withhold support with hopes of getting a higher price, as happened in recent takeover fights at Clear Channel Communications Inc. That could be why the company sought a greater margin of support from the family as the process entered its last days.
News Corp. will need to get regulatory approval for the deal, although Mr. Murdoch has said he doesn't expect that to be an issue. Assuming the deal is approved, closing could take place by the end of the year.
The deal raises questions about the future of some senior Dow Jones executives, including Chief Executive Richard Zannino. Once Dow Jones becomes a subsidiary of News Corp., Mr. Zannino may eventually move on.
Severance Packages
Some top executives may be eligible for big severance packages once the sale is completed. Dow Jones implemented change-in-control provisions for more than 100 top managers in early June, a month after the bid was made. Mr. Zannino stands to receive some $19 million if he loses his job or has his duties cut after a change in control.
Mr. Murdoch has argued that The Wall Street Journal will be able to take advantage of News Corp. synergies to gain ground in Europe and Asia, take on national rivals in political coverage.
While he has been vilified for years in the media over issues ranging from union-busting to sensationalist journalism, he has always showed a thick skin, secure in his belief that his critics are antibusiness elitists. Still, the drama preceding the sale of Dow Jones exposed him to unprecedented scrutiny and often harsh criticism.
Now Mr. Murdoch must persuade some factions of Dow Jones's newsrooms, and outside critics, that he will act responsibly as he weighs changes to the Journal and other Dow Jones publications.
In letter to readers, Journal Publisher L. Gordon Crovitz wrote, "The same standards of accuracy, fairness and authority will apply to this publication, regardless of ownership."
News Corp. agreed as part of the deal to invite one Bancroft family representative onto its board of directors and to create a committee to protect Dow Jones's journalistic independence. The committee members are slated to be Louis D. Boccardi, retired CEO of the Associated Press; Nicholas Negroponte, co-founder of Massachusetts Institute of Technology's Media Lab; Jack Fuller, former president of Tribune Publishing; Jennifer Blackburn Dunn, a former congresswoman from Washington state; and Thomas Bray, the former editorial-page editor of the Detroit News and a writer for OpinionJournal.com. Mr. Bray will be chairman.
--Dennis K. Berman, Susan Warren and Susan Pulliam contributed to this article.
