The Bancrofts are supposed to use their control of the WSJ to veto buyouts, not to extract a huge premium. If Murdoch buys the paper, the Bancrofts should forfeit their windfall.
By Peter Scheer
In making his bid to buy Dow Jones, the parent company of the Wall Street Journal, media baron Rupert Murdoch’s crucial insight was that everyone has his (or her) price, even the thirty-five members of the Bancroft family who control ownership of the venerable newspaper company.
This may seem obvious now, but until Murdoch made his $5 billion offer for Dow Jones, the conventional wisdom was that the families that control the country’s preeminent newspapers—the Sulzbergers (who own control of the New York Times), the Grahams (Washington Post) and the Bancrofts (Wall Street Journal)—could not be paid enough to induce them to sell off their legacies.
Although these newspapers are public companies—in the sense that they have sold stock to outside shareholders—the families retain control through ownership of a class of vote-rich stock. This arrangement, despite its disenfranchisement of public shareholders, is defended on grounds that newspapers are a public trust, to be managed in the public interest by owners willing to forego short-term financial gain in order to safeguard the newspapers’ editorial integrity.
Clarence Barron, who purchased the Wall Street Journal in 1903 and created the family trusts through which the Bancrofts exercise control, would roll over in his grave to learn that his family, upon receiving Murdoch’s lucrative offer, didn’t JUST SAY NO. That’s why they were given their majority-voting stake, after all: to block attempted takeovers of the newspaper, not to use it as leverage to extract a windfall.
The Bancrofts are like the proverbial prostitute who, when a customer inquires about a discount, declares indignantly: “What kind of woman do you think I am?” Murdoch, the consummate dealmaker, understood this. He knew that, while the Bancrofts were committed in principle to preserving the Journal’s independence, that principle could be bought at the right price.
Murdoch set his bid for the company at $60 per share, a whopping 67% above Dow Jones’ share price before the bid became public. This huge premium, offered at a time of collapsing valuations for most newspaper companies, was high enough to both preempt competing bids, and to make the Bancrofts—each of whom will be roughly $14 million richer, on average, than before Murdoch appeared on the scene—reconsider the family’s commitment to resist takeovers.
In fairness, the Bancrofts might have worried about being sued by Dow Jones’ public shareholders had the board, at the family’s direction, rejected Murdoch’s offer out-of-hand. The public shareholders, however, knew when they bought stock having little or no voting power that they were ceding to the company the right to subordinate their financial interests to the public interest—as the Bancrofts perceive it—in preserving the Journal’s independence.
Also in fairness, the Bancrofts may believe that Dow Jones is so weakened financially that it needs to be part of a larger company—other than Murdoch’s News Corp., that is–with deep pockets and a willingness to invest heavily in the Journal. But if they are serious about pursuing alternative buy-out options, the Bancrofts will have to consider offers below Murdoch’s $60 per share bid—something they thus far have shown no inclination to do.
At this writing the Bancrofts and Murdoch are still negotiating, with the Bancrofts insisting unrealistically that Murdoch keep his hands off the news and editorial sides of the newspaper, and Murdoch making promises about editorial independence that, based on past experience, he probably has no intention of keeping. It is a dance choreographed by Murdoch to burnish his own image and to make the Bancrofts feel less guilty about selling out.
If, as seems likely, the parties come to terms on a deal, the Bancroft family members should be shamed into forgoing their windfall. They should be compensated for their stock, of course, but only for its value before Murdoch made his buyout offer. The huge premium in Murdoch’s $5 billion bid—amounting to some $495 million for the Bancroft family’s shares—should be put in a trust to underwrite the kind of investigative and enterprise journalism at which the Journal has long excelled.
That would be a gesture worthy of the family owners of what may be the best newspaper in the world.
Peter Scheer, a lawyer and journalist, is executive director of CFAC.