News Corp. Is Poised to Win Dow Jones

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. Mr.
Murdoch said yesterday he could add four pages of news coverage to the
Journal.

The 76-year-old mogul, whose properties range from the
Fox television network to the Times of London, negotiated hard to win
the paper he long coveted. 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 the offer 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 yesterday afternoon. In a letter to the
board, she conceded the deal was a good one in financial terms, but
added, “[I]t is not enough to outweigh the potential ramifications of
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.

“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.”

As News Corp.’s board met yesterday evening to sign
off on the deal, the company’s offer had received support from Bancroft
family members holding 37.4% of Dow Jones’ voting power, more than half
of the family’s total voting stake of 64.2%. When added to the 29% of
Dow Jones’ 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.

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
the far-flung family together.

Those bonds were tested during the debate over the
deal, which brought forth long-submerged rifts. 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 to have
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 and the family’s advisers to convince holdouts that they
should accept Mr. Murdoch’s offer. 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 big swing shareholder to switch sides 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 B-class
supervoting shares. These shares are mostly held by the Bancrofts. But
when some of those Boston 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 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. would assume these liabilities if it bought
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 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.

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.

It appeared yesterday afternoon that the Denver trust
was able to vote only a portion of its 9.1% stake in favor of the deal.
The trust excluded a portion of its stock held for the benefit of
Christopher Bancroft, one of the most outspoken Bancrofts in opposing
the News Corp. offer. Mr. Bancroft also resisted attempts by Hemenway
& Barnes to allow restructuring of other trusts that would have let
some other shares he oversees be voted in support.

Mr. Bancroft said yesterday 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.

His cousin, Jane 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
outright 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.

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 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.

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
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.”

Once definitive merger agreements are signed by the
two companies, Dow Jones will set the date for a shareholder meeting to
approve the deal. Mr. Murdoch’s advisers suggest shareholder approval
is a fait accompli. With family members contributing about 38% 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 “A”
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.

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.

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 move
on. Mr. Zannino didn’t immediately respond to a request for comment.

Some top executives may be able to quit with 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
more than $20 million, including extra money Dow Jones has committed to
pay to cover a portion of the taxes owed by nine top executives on
their severance.

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, seek
more consumer advertising and expand efforts in television and online.

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, though, the drama preceding the sale of
Dow Jones exposed him to unprecedented scrutiny and often harsh
criticism.

“The sale of Dow Jones raises enormous concerns about
the state of independent, competitive sources of high-quality
journalism,” said Gene Kimmelman, a vice president at Consumers Union,
in a statement yesterday. “Murdoch’s track record of interfering and
politicizing professional journalism is well-documented.” MoveOn.org, a
liberal organization, announced an “event” today in front of Dow Jones
headquarters at which it will hand out parodies of the Journal cobbled
from Fox News headlines.

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.

Few expect Mr. Murdoch to turn the Journal into a
scandal sheet, and he has said his views are generally in accord with
the conservative tone of the Journal’s editorial pages. An editorial
oversight board will make it cumbersome for him to make drastic
changes. And many have argued that it would be bad business for Mr.
Murdoch to tinker too much with the franchise, and that he understands
that.

But despite all these strictures, for Mr. Murdoch,
owning Dow Jones isn’t about business — it’s personal. No one who
knows Mr. Murdoch expects him to be shy in expressing his views about
the paper. He has strong opinions about paper and ink, and he famously
loves poring over layouts with his sleeves rolled up.

Even when news of his offer broke and he knew it was
important to soothe the feelings of skeptical employees and readers, he
still irrepressibly went off script to say in an interview that he got
“frustrated by the long stories.”

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