War at the Wall Street Journal

by Sarah Ellison

  Steginsky spent months trying to dig up a contact number for Billy, eventually tracking him down in April of 2005 when Billy was living in Rome. Steginsky had called and told Billy of Murdoch's interest. Billy was delighted. Murdoch's desire to own the Journal was always assumed in the Bancroft family, but it wasn't clear he was ever going to make the move. Now, this seemed concrete. Steginsky had a way of talking about Murdoch as if he were a dear friend, something Billy often did himself when he was talking about business deals. He mentioned the director Ron Howard and McGraw-Hill CEO Terry McGraw as if they were his brothers. Billy said he would set up a family meeting to discuss Murdoch's interest. Then came the Bancroft family forum in October 2006 when he finally delivered the message.

  Afterward, he told Steginsky about the meeting and how the message was received. Steginsky realized he needed to delve deeper. He mentioned to Murdoch that it might be helpful to visit Billy in Rome, and Murdoch agreed. It was then that Steginsky, sensing genuine interest, suggested that such a trip and such a project might require a significant amount of time and money. Murdoch quickly said he'd give him some money up front for the time and travel and would compensate him generously if anything came of his work. Murdoch saw Steginsky as a small-time money manager who was eager to curry favor, but he sensed the sycophant might be useful.

  As Murdoch was hearing from Steginsky about the Bancroft meeting, Jimmy Lee was busy arranging another meeting—this one a lunch—for Murdoch and Zannino. Four days before their meeting, on October 25, 2006, Murdoch got a call from Jimmy. Murdoch and Jimmy knew what they wanted to accomplish, and they spoke straightforwardly about Murdoch's next move. He wouldn't make an offer that day but would further gauge Zannino's stance. Both Murdoch and Jimmy knew about the Bancrofts' big family meeting in Boston and Billy's announcement of Murdoch's interest.

  After they hung up, Jimmy called Zannino. Here, the conversation was much more complex. Zannino was careful and, as was frequently the case with an acquiree, not entirely ready to give up the reins. But Zannino was more aware than ever of the limitations of Dow Jones. The environment for newspapers continued to worsen. He had spent his first several months replacing his management team, reorganizing the company into two divisions, and cutting costs. But Dow Jones's stock price had barely budged, and the competitors were in nose-dives. Newspaper company profit margins were rapidly dwindling. In Chicago, the Tribune Company was desperately trying to sell itself at the urging of the Chandler family, which retained a large stake. The future of the industry was undoubtedly bleaker than its storied past, and even the optimists—who kept hoping that the masses of readers who had turned away from traditional newspapers would turn back to them in their digital form—were getting nervous. Zannino knew his company was up against it. When Jimmy called Zannino, the two started up the easy banter they often did, and the topic was Dow Jones. As usual, Jimmy took notes.

  This second meeting would be more serious than the first. The men were meeting at Jimmy's offices, and he would reserve one of the executive dining rooms looking out over the Chrysler and Empire State buildings, a majestic setting for the cause. Five months had passed since their last rendezvous. Murdoch made no secret of his in terest in Dow Jones, though he had spoken out a few months earlier to express his displeasure with the redesign of the paper. Even then, Murdoch's comments betrayed an interest well beyond that of an enthusiastic subscriber.

  Zannino had been watching the dire developments in Chicago at the Tribune Company. He and Dow Jones's publisher, Gordon Crovitz, had just explored an acquisition of Business Wire, an idea that was rebuffed by the independent directors of Dow Jones and the Bancroft family directors. Much to Zannino's and Crovitz's chagrin, Warren Buffett snapped up the company shortly thereafter for 20 percent more than what Dow Jones had offered.

  When he got on the phone with Jimmy, he shared his thoughts. Zannino had been working on a three-year plan for Dow Jones and had presented it to the board at the last meeting. "I got us up to $47 a share in two years," Zannino said proudly. But even with his aggressive plan, he saw that there were limitations. "In the hands of a bigger company, we wouldn't have to think twice about spending money," Zannino said. Dow Jones had been planning to spend $12 million on a branding campaign but now could not, given the dire state of the industry and the dwindling advertising revenues, he lamented.

  Jimmy told Zannino about the Bancroft family's gathering earlier in the month. Zannino, who barely knew the family, hadn't heard the news. Given everything, Zannino said, "It's not a bad time to say something." Jimmy let the words hang there as he contemplated them. He scribbled down in his notes:

  NOT A BAD TIME TO SAY SOMETHING.

  Zannino sounded frustrated on the call and shared with Jimmy his feelings about the board's earlier decision to keep Kann on as chairman of Dow Jones. Jimmy made a mental note to talk to Rupert about the chairman role. Maybe that was something they could discuss at lunch.

  SAY SOMETHING ABOUT CHAIRMAN. MAYBE RICH MAYBE NOT

  MAYBE YES. PETER KANN?

  Then Rich talked to Jimmy about how the board was about to change. At the company's annual meeting in April, when Peter Kann would retire as chairman, Dieter von Holtzbrinck, Irvine Hockaday, and William Steere would all step down from the board, Rich said. Jimmy scribbled:

  DIETER VAN-OFF BOARD

  IRV-OFF BOARD

  STEERE—OFF BOARD

  Jimmy remembered from his conversation years ago with Zannino that Hockaday and Steere were two of the influential board members Zannino had flagged as Kann loyalists. Having them gone might be an advantage, Jimmy thought. If a hedge fund started stirring the pot, Jimmy mused to himself, this would be a golden opportunity.

  With that, the two wound up their chat, planning to meet that coming Friday at JPMorgan. Murdoch would arrive at noon and Zannino would come slightly later, at twelve thirty.

  The lunch, interrupted by a drop-in by JPMorgan CEO Jamie Dimon (orchestrated by Jimmy to make both his guests feel special), was uneventful. But by showing up at the second lunch, Zannino had sent the message. "He may have just been vaguely interested in meeting with us the first time," Murdoch says, recalling the meetings. "The second time, he would have realized what was in my mind, that I had made up my mind." There was no direct discussion of the takeover, but all the participants knew the purpose. "I think that was sort of unsaid," Murdoch remembered. "You know?"

  One morning in November, after the Bancrofts had gathered in Boston and Zannino and Murdoch had dined together for the second time, Steginsky called Billy to gently press him about meeting face-to-face. Finally, Billy casually offered what Steginsky had waited months to hear: "If you come to Rome, I'll help you." Steginsky was still in his pajamas, but as soon as he hung up the phone, he dialed a limousine service and ordered a car to Newark airport. He dressed quickly, throwing clothes into a small bag, and only when he was halfway to the airport did he realize he hadn't booked a flight. He called Continental, the only airline he could remember with a direct flight from Newark to Europe, and asked to get a seat on the next flight to Rome. The next available flight wasn't until five thirty, and it was just after noon. Shaking his head, he chastised himself. He was too early and would have four hours to kill at the airport.

  When he arrived in Rome, he headed straight to his hotel, the Hotel de Russie, between the Spanish Steps and the Piazza del Popolo, near Billy's apartment. It was before 7:00 a.m., and too early to call, so Steginsky, who had waited all these months, waited some more. Finally, midmorning, he dialed Billy's number.

  "Boy, it must be early in New Jersey," Billy said, confused by the call that was coming so soon after their last chat. Typically they talked every few weeks or months. "What's up?"

  "I'm in Rome," Steginsky replied excitedly. "At the hotel across the street." Billy paused for a moment before he could answer. He re-covered quickly, amused by the eagerness with which Steginsky was courting him. The two set up a lunch meeting for that day.

&nb
sp; Billy, his wife, Beatrice, and their son, Clarence, arrived at the café. Steginsky sat at an outdoor table. To avoid the sun, still strong at this time of year in Rome, they moved inside for lunch. Steginsky tried not to bring up the Bancrofts or Dow Jones. He knew casual conversation might make Billy feel more comfortable and make him more likely to hand over important information about his family. He was there to ignite a Bancroft family blowup and had picked the right powder keg. A schism was what Murdoch needed for Clarence Barron's heirs to finally part ways with the company they had protected for the past century.

  The next night, Billy and Steginsky went to dinner alone. After a few glasses of wine and the slightest of prodding, Billy started talking. Steginsky took notes, and by the end of the night (and the end of a few bottles) he had about twenty-five names and phone numbers of Billy's siblings, cousins, aunts, and uncles. Steginsky went back to his hotel happy. He sent an update to Murdoch and slept soundly, knowing he was getting somewhere.

  The following morning, Steginsky and Billy met for breakfast at the Hotel de Russie, by now with the rapport of college drinking bud dies after a bender. Billy was nursing a hangover from the night before. "What did I do last night?" Billy asked Steginsky, with a laugh.

  "You gave me about twenty-five names in your family," Steginsky replied.

  "Oh, no," Billy groaned.

  "You're a friend," Steginsky said quickly, fearing he was losing his target to regret. "I won't do anything with these until you tell me to." Billy visibly relaxed and took a breath.

  "Well," he said slowly, "if you are going to contact people, you should start with Elisabeth."

  "Well, let's call her!" Steginsky said, handing his cell phone to Billy.

  Billy dialed his cousin. "Hi, Elisabeth," Billy said. "So I'm sitting here with a friend of mine who is working on behalf of Rupert Murdoch and he wants to know if you'd be open to meeting with him."

  That an emissary of Rupert Murdoch's would be interested in talking to Elisabeth was neither surprising nor alarming. She was accustomed to these kinds of approaches. She wasn't entirely certain if Billy's friend was really working with Murdoch. But she knew that Murdoch, with his stable of newspapers, was a natural buyer for Dow Jones.

  "Sure," she said, carefully. "Have him come meet us."

  Before Billy and Elisabeth had hung up from that conversation, Steginsky was on his way to talk to the concierge at his hotel about arranging a flight to Prague to see Elisabeth.

  The VIP lounge of the Prague airport, outfitted with pleather chairs and surly waiters, reminded the forty-two-year-old Elisabeth Goth Chelberg, older now and a bit battle-weary after her tussles with her family, of all the imperfections of her partially adopted home. Elisabeth had been married about a year to her second husband, Robert Chelberg, and she was spending roughly half of the year in this cold city and the other half of the year in Springfield, Kentucky. There, in the center of the state's famous horse country that lay halfway between Lexington and Louisville, off the Bourbon trail and close to the stables where she kept her horses, she resided in a rambling stone mansion with her two Jack Russell terriers and a basset hound. Elis abeth had lived alone long enough as the center of her own universe to have grown accustomed to her own rhythms and schedules. When she and Robert met, she became infatuated with him and her world changed immediately, but fitting herself into his ready-made life in Prague, where his first wife and child lived nearby and where business dictated his schedule, had been difficult. Prague was Robert's place and she tried to tolerate it, sometimes successfully.

  Elisabeth had become active in the local community of recovering addicts. Once she became completely clean, she had gotten an elaborate new-age tattoo, but she still sported pearls and Yves Saint Laurent rhinestone-studded jeans with her riding boots. In her small town in Kentucky she was well known among the locals who shared her passion for equestrian pursuits. Because of her move abroad, she had dramatically scaled back her riding from the days when she won the Three-Gaited World's Grand Championship, but she still maintained several horses at a nearby stable. The horses, as they had been after the deaths of her brother and mother, were a comfort. Her scarred relationship with her uncle Chris was healing. She had refurbished the garage behind her house into a stylish, cozy apartment for her assistant, Philip, who provided real companionship with his witty quips and big-city irony. She socialized with a supportive group of women whom she had, over the years, collected. After the difficult childhood, the years alone, the battles with her stepfather and her broader family, she had emerged on the other side of it all intact and felt quietly triumphant. The only remaining disappointment was Dow Jones.

  Waiting for her mysterious visitor that cold November afternoon in 2006, Elisabeth remembered all the suitors who had come since the death of Bettina. With carefully tended honey-blond hair that framed her sculpted, delicate features, Elisabeth had grown accustomed to being doted on by billionaires. The Bass family had sent their intermediaries, as had George Soros. For hours she'd entertained the entreaties of value investor Michael Price. This time, as always, she knew her admirer was interested in her not for her looks or her money. He came for the family jewel—the Wall Street Journal.

  Elisabeth looked up brightly as Steginsky approached her. The day of his breakfast with Billy, a uniformed security guard ushered Steginsky off the plane in Prague and led him down the tarmac to a private car that drove him to the VIP lounge, where Elisabeth and her husband were waiting. Elisabeth was, as was customary in her first meetings, wary and reticent to blurt out the kind of specifics Billy seemed ready to produce. Elisabeth saw through Steginsky's self-deprecation and obsequious nature. He seemed to be trying very hard to appear very friendly. Steginsky, eager to find Bancrofts sympathetic to his cause, asked Elisabeth what she thought of someone like Rupert Murdoch buying Dow Jones.

  Elisabeth knew that it would fall to her to help facilitate this purported interest in her family's company. The elders in her family and their lawyers couldn't be trusted to respond responsibly to acquisition offers for Dow Jones. Elisabeth remembered that back in 2003 she had learned that Arthur Sulzberger Jr. of the New York Times Company had met with Roy Hammer, the haughty Bancroft family trustee, and proposed that the Times Company buy Dow Jones. Hammer rejected the notion. Hammer informed Kann but told the board only after he had rebuffed the offer. Elisabeth learned the news only later from an investment banker friend of hers at an opera fund-raiser. She wasn't going to let something like that happen again.

  "Because of what has happened in the past, if you want to get some kind of an adequate response, you'll have to put something in writing," she advised Steginsky.

  "I'm worried that the trustees might turn down the offer out of hand, without even talking to the board or the family," he said.

  "Then send it to the trustees and the board," she replied.

  Without having left the airport and without even having had his passport stamped, Steginsky boarded a return flight to Rome, single-minded. He returned to New York the following day, bearing useful news for his Australian patron.

  6. The Chase

  RICH ZANNINO WAS on vacation at the elegant Ocean Club resort in the Bahamas with his wife and four children in February 2007 when he received an e-mail from his assistant that, at least temporarily, ended his interlude of fun and frivolity. Rupert Murdoch had called and asked for a call back, even though Zannino was on vacation. It seemed odd, but Zannino had already been interrupted once by Dow Jones's incoming board chairman, M. Peter McPherson, president of the National Association of State Universities and Land-Grant Colleges. McPherson had served on the board for several years and often sat in meetings with an unlit cigar in the corner of his mouth, cheerily whiling away the hours. Though not a veteran of corporate boardrooms, he had extensive political experience as a special assistant to President Ford and as deputy treasury secretary under Reagan. McPherson was calling to talk to Zannino about the ongoing search for the Journal's next managing
editor. Some board members wanted to get an update on the decision making, McPherson had said. Zannino agreed to loop them in when he returned. No rest for a young CEO the first year on the job, he thought. He knew his time to improve his company's performance was limited. Zannino, a student of traditional business rules and time frames, knew that new CEOs had about eighteen months to show the fruits of their work. He was a year into his job and the stock price hadn't budged from the mid-thirties.

  Once Murdoch called, the clock was ticking. To the mogul, "vacation" simply meant the relocation of his office to his 184-foot Perini Navi yacht, the Rosehearty, designed by Christian Liaigre (a Wendi Murdoch favorite) and comprising six minimalist suites, a gym, six flat-screen televisions, always-on wireless Internet, and two small dinghies, named Grace and Chloe. There, his children and grandchildren played together and he spent most of his time, as he always did, reading the papers and talking on the phone. He didn't consider interrupting someone else's holiday an imposition. As his staff well knew, he was used to immediate responses and he got them. (Murdoch's employees were openly thankful that he had not yet adopted a BlackBerry, though he made ample use of Wendi's.) Zannino didn't work for Murdoch, but of course he knew what was required when summoned by a figure at such lofty heights in the financial hierarchy.

  The phone conversation that followed on that sunny evening in the Bahamas was short and deceptively mundane. With Murdoch, there were no jokes, flourishes, attempts to charm. He was a blunt instrument with a busy day ahead. "Will you have breakfast with me?" Murdoch asked. "Sure," Zannino replied. "I thought we could do it at my offices," Murdoch stated flatly. Their assistants set up a date.