War at the Wall Street Journal

by Sarah Ellison

  "This is a huge price," he said.

  "This is not what I want to hear," Leslie said. "What I want to hear is that you love your new job and you don't want to sell the company. That we could grow the company and find other strategic partners. Convince me you can do something with the company," she pleaded.

  7. The Letter

  ON APRIL 4, 2007, the outlook for the U.S. economy was darkening. The real estate industry had peaked the year before, and concerns were mounting about the default rates of subprime borrowers. In the newspaper industry, the Chandler-family-instigated auction of the Tribune Company had turned into not an auction at all, but a desperate fire sale in which Sam Zell had agreed to buy the storied newspaper firm for $8.2 billion, far less than any of the bankers involved in the deal had originally thought it would be worth. Worse for the industry's outlook, Zell had barely been willing to put any of his own money into the deal, instead borrowing vast funds from friendly banks such as Citigroup and JPMorgan. Still, even as the world's financiers were losing faith in the newspaper industry, Rupert Murdoch was undeterred in his drive for Dow Jones. His shareholders in News Corp. had just the day before voted to approve a deal to swap the company's DirecTV unit for Liberty Media's John Malone's 16 percent stake in News Corp., which had threatened Murdoch's family control. Now, with that interloper out of the way, Murdoch was free to make his move. The CFO, David DeVoe, had been working on the structure with his deputy, John Nallen.

  The day after the shareholder vote he flew with Gary Ginsberg and their families off the coast of St. Barts to spend a few days on his boat, the Rosehearty. Murdoch, who seemed to have put any discouraging details he had picked up about the Bancrofts' desire to sell in some unreachable compartment in his consciousness, moved forward with zeal and what seemed to be utter lack of doubt about the ultimate outcome of this transaction. Fresh from the breakfast with Zannino, he had instructed his CFO and others to prepare the formal bid for Dow Jones, a fact he had yet to share with Ginsberg, whose constant contact with the outside press and politicians made him, at that early stage, a risky confidant.

  The weekend on the boat was an unusual scene of domesticity for Murdoch. His two young daughters, Grace and Chloe, saw him more than his older children had, but he only had so much time. The girls were more accustomed to life with four nannies (two from Australia and two from China), piano lessons, and shuttles between the Episcopal School and the rented penthouse on Park Avenue. The Murdochs were renting the Trump Park Avenue apartment until their $50.8 million purchase, the late Laurance S. Rockefeller's Fifth Avenue penthouse, was ready. Rupert had been eyeing the Rockefeller apartment at 834 Fifth Avenue his entire adult life. Back in the 1970s and early 1980s Murdoch had lived in a $350,000 duplex in the same building. Then, Murdoch was new to New York and Rockefeller was the chairman of the co-op board. Murdoch had attended a few shareholder meetings in the twenty-room, eight-thousand-square-foot triplex with a broad terrace. For Murdoch, the penthouse would be completely renovated by famed French designer Christian Liaigre, who had done Rupert and Wendi's previous apartment. For a few years, the Murdochs had lived in SoHo, when Lachlan and James were still in New York and Wendi was new to the city. In the SoHo apartment, Liaigre had installed a fully outfitted gym and a large screening room and turned the attached water tower into a dollhouse for the girls. Once Lachlan and James left, Murdoch felt the neighborhood was inappropriate for children and planned the move uptown.

  The renovation project was taking longer than expected. Wendi would complain to the other mothers at the Episcopal School, who mocked the heavy Chinese accent of the nouvelle arriviste. "Rockefeller apartment, fifty-point-eight million," they would say, replacing the Ls with Rs to mimic Wendi's staccato speech. "But we had to put twenty million into it. Gut renovation." They whispered more, in front of the school, as the chauffeur and the nanny climbed out of the black SUV with tinted windows and dropped the girls off. "Those poor things. They never see their parents." The self-appointed minders of Grace's and Chloe's well-being worried especially on fathers' day at school, a Wednesday every year when devoted dads took the afternoon off to pick up the kids and get their photo taken together to be displayed in the school's halls. One year, Grace's photo stood out from the pictures of the other students. She had posed for her portrait arm in arm with the chauffeur, George, not her father. The mothers clucked with amused disapproval. Wendi noticed, and the next year Rupert showed up, but, the story goes, he stayed for only seven minutes and left the moment the flashbulb snapped.

  When Ginsberg and Murdoch returned to the office on Monday, April 9, Murdoch, without any ceremony, stood in his office and announced bluntly to Ginsberg that he was about to bid for Dow Jones. Never mind that they had just spent the weekend together and Murdoch spoke not a word of his plan; Murdoch typically had enough going on that he couldn't be completely honest with any single person, much less the executives who had a stake in his action.

  Then, with the same deliberation with which he had avoided the topic the weekend before, Murdoch started to talk about it nonstop, mainly to his board members, whom he was preparing for their regularly scheduled board meeting the following week. Murdoch knew a deal like this one at a time when newspapers had utterly lost their appeal as a business had to be seeded carefully with his board. One by one, he called his directors and pitched them. As was typical, none objected—the closest thing Murdoch got to internal resistance was from his chief operating officer, Peter Chernin, who didn't share Murdoch's irrationally exuberant passion for print—and the following Tuesday, the board unanimously approved the offer. Even if one couldn't justify the deal in business terms, the company, with almost sixty thousand employees spread across the globe, seemed to be made up of only one person. His passions had created the business and they would dictate it, for better or worse.

  Later that day, the offer letter arrived by messenger at the offices of Dow Jones & Company. Addressed to company chairman Peter McPherson (who was the following day taking up his official post at the company's annual shareholder meeting), it outlined News Corporation's offer for Dow Jones: $60 a share in cash, then a nearly 70 percent premium over Dow Jones's recent share price. The letter praised the company and flattered its management. It invited McPherson and company advisers to a meeting "to discuss all aspects of our proposal, and to answer any questions you or they may have." It requested—"Although we have already completed a thorough due diligence review based solely on publicly available information..."—a meeting to begin a more detailed review of Dow Jones's financials. "We aim to promptly conclude a transaction that is enthusiastically supported by you and your Board of Directors, stockholders and employees," the letter said in closing. "We look forward to hearing from you."

  When the envelope with the offer arrived, Zannino was expecting it. Murdoch had called Zannino shortly after their breakfast. "I wanted to know when your next board meeting is," he said. Zannino replied, coyly, aware of the sensitivity now of his interactions with Murdoch: "Rupert, I think if you look at the public record, you'll see when we have a board meeting, with the annual meeting, and we posted the date."

  "Save me from looking it up. When's your annual meeting? Our meeting is April 17," Murdoch said. Zannino relented and told Murdoch that the board meeting was April 18.

  "I'll get to you before the board meeting," Murdoch replied.

  So on April 17 when Zannino saw the envelope sitting on his desk—from News Corporation and addressed to the chairman of Dow Jones—he and Joe Stern opened it, knowing what to expect. They read the offer, which contained the same eye-popping price Murdoch had promised to him two and a half weeks earlier. Then they immediately arranged a call for the directors to alert them that the letter had arrived.

  April 17, 2007, on the eve of Dow Jones & Company's annual meeting, the forty-five-year-old Marcus Brauchli was in his tiny office on the northwest corner of the Journal's ninth-floor newsroom, an unusual place for the global news editor. Most of the time he
wasn't office-bound and could be found moving quickly through the news room, engaging his fellow editors in quick conversations or, just as likely, moving out the door to meet with someone more important.

  His kinetic presence called to mind a rambunctious child who was perpetually unable to sit still or settle down. He found humor in the frenzy of it all and enjoyed nothing more than the intellectual workout of being in the center of a newspaper in the midst of a newspaper crisis. He often mused aloud about his desire to move back to China, where he had been more of a free agent, unhindered by the day-today bureaucracy and monotony his current job entailed. And yet, at each juncture of his career, when presented with a choice that took him off the ambitious track, he chose the very well-traveled road and made fun of it all the way. Whatever his true thoughts, he was smart enough to crack a joke, write a headline, and get to his drinks meeting by six. He had spent the better part of the previous year and a half working on the redesign of the paper, which had allowed him plenty of time to network and engage in a project executives both inside and outside the Journal found fascinating. The redesign was, in fact, the main reason he had been such a scant presence in the newsroom.

  That afternoon, however, he was sitting at his desk when his phone rang and the name of his colleague and friend money and investing editor Nikhil Deogun popped up in digital font on its small gray screen. Young and ambitious, the two were allies in their plans to shake up the paper. Both were riding high, along with the rest of the Journal newsroom, on the back of the two Pulitzer Prizes the paper had won the previous day. The paper had won an International prize for its series on the adverse effects of industrial development in China, and the Public Service award—the most prestigious of all Pulitzers—for its series on business executives who had rewarded themselves with millions of dollars by backdating stock options. The articles led to the federal investigation of more than 130 companies, and at least seventy top executives had lost their jobs. It was the Journal at its finest, and all the more meaningful because the paper had been able to hand Steiger the Public Service award just as he was about to retire. A perfect sendoff. Neither would be able to truly anticipate the earthquake that was about to hit them, of course. Brauchli picked up the phone and heard the conspiratorially low voice of Deogun on the other end.

  "Can you meet me downstairs by the turnstiles?" Deogun asked. Deogun's tone was steady, much as it was when he was reporting any business deal. Once downstairs in the lobby of the World Financial Center, Deogun pulled Brauchli aside and said, "I just got a call from a source telling me that Murdoch has submitted a bid for Dow Jones." Deogun was in the process of moving from Washington, DC, where he had been a deputy in the Journal's Washington bureau, to New York, where he was taking over the paper's Money & Investing section. He didn't reveal his sources to Brauchli, but Deogun's connectedness had just put him in an uncomfortable position: he had first heard this news earlier in the day from a longtime source who had thought Deogun was still in DC. He told Deogun the news "off the record" and threatened him with legal language when he realized Deogun might actually report it. Deogun liked to be in the game, but he wasn't sure he wanted to be this deep in it. He had told the paper's exiting managing editor, Paul Steiger, but no one else. He was, very uncharacteristically, almost paralyzed by the tip he had just been handed.

  Though Murdoch was well known in media circles to covet the Journal, an actual bid from him was a shock. Most reporters and editors at the Journal couldn't envision what the paper would be like without the Bancrofts; many of them, like Brauchli, had never really worked anywhere else. Brauchli took the news from Deogun calmly, the way one does when in denial of an imminently threatening event. He wasn't certain the offer was for real, or, more important, whether the Bancroft family would even entertain the idea of selling the company. Other offers had come in for the Journal in years past, but the paper remained independent, and its journalists remained buffered from the corporate takeover dramas they covered at other institutions with jaded eyes.

  Reality set in later that afternoon, when Brauchli's phone rang again, this time with a call from Robert Thomson, the editor of Murdoch's Times of London. Thomson suffered from the painful chronic inflammatory joint disease ankylosing spondylitis, which constricted his chest to the point that his posture was perpetually stooped. A native of Australia like his boss, he was known in London for his dry wit, his quiet but winning demeanor, and his idiosyncratic fashions—he seemed perpetually clad in a skinny black suit and skinny black tie.

  Brauchli was surprised that Thomson was in New York, but he confirmed the news. "Yes, they just sent it over," Thomson said, when Brauchli asked him about it. "That's why I'm in New York." Thomson's information was more specific than Deogun's—he told Brauchli of the $60 price tag—and he suggested grabbing a drink later. It was clear he had inside knowledge of the bid. Brauchli rushed off the call.

  Thomson, who was born thirty years to the day after Murdoch, had become a kind of adopted son to the old man (though one of his own sons claimed it was with his editors that Murdoch had his most successful relationships; his children occasionally rose to the level of being adopted editors). Thomson had strong opinions about the paper. He remembered competing against it half a decade before when he was running the Financial Timess U.S. edition in New York. His team broke stories the Journal ignored but then followed days later without recognizing the FT's scoop.

  He thought the Journal's focus—long, front-page feature stories that often had very little to do with the day's news—bred complacency and indulgence. And he knew that just a year previously, in what he saw as the misguided retreat dubbed "Journal 3.0," the paper was backing even further away from the news. The Journal was trying to go in another direction, to emphasize its strong suit and analyze the news in the pages of the paper, not just report it. The effort at analysis, Thomson would later note dismissively, meant starting most articles with the word how and filling the paper with clunky analysis. It was, to him, pretending the newspaper wasn't in the business of breaking news. He disapproved of the new approach and had spent years whispering into Murdoch's ear about how he could improve the paper. In 2001, after Thomson had taken over as U.S. editor of the Financial Times, he said that the Journal was best at covering "midsize companies doing middling deals in the Midwest," while the FT was designed for a more sophisticated reader. "It's a Lexus Taurus thing." He knew Brauchli from way back when they were both foreign correspondents in Asia, but he didn't like the direction his friend's paper was taking.

  A day or two after the bid, Deogun received another call from Ginsberg, bearing the same news. Both Ginsberg and Thomson were calling on Rupert's behalf, gauging the reaction inside the Journal's newsroom in order to bring a scrap of information back to their boss and benefactor. Murdoch craved it.

  Murdoch and Thomson vacationed together, and their wives, both Chinese and roughly the same age, got along well. Thomson shared Murdoch's Australian puckishness, and both men relished their ability to provoke. Both men were defined by a certain disdain for their backgrounds. Thomson, one of three boys, grew up the son of a typesetter in a small hamlet in Australia. He took a job as a copy boy at age seventeen at the Herald in Melbourne.

  Thomson had met Murdoch in New York when the former was the U.S. editor of the Financial Times. Their bond was cemented when Thomson, in a move that both he and Murdoch saw as a slight from the posh Brits, was passed over to be the top editor of the Financial Times. Thomson was deeply wounded by the oversight, and Murdoch, sensing a countryman in distress, scooped Thomson up as his chosen editor for the Times of London. With time, the two grew even closer. Thomson's own father having been a complicated presence in his upbringing, Murdoch filled the role.

  The same day, April 17, 2007, that Brauchli received the calls alerting him to News Corp.'s offer, he also fielded another call from Journal publisher Gordon Crovitz, bearing a different sort of news. Crovitz hadn't yet been notified of the bid (he wouldn't find out until almo
st two weeks later, when news of it broke on May 1). Brauchli didn't mention the Murdoch bid; he was treating it, for the moment, like an enormously sensitive news story that he wasn't going to spread around.

  In Crovitz's mind, the day was significant for a different reason: Dow Jones was going to appoint a new managing editor of the Journal, the first such appointment in sixteen years. He had been dread ing the day, because it meant he was going to officially have to betray his friend Paul Ingrassia.

  After Ingrassia had spent almost a year on his "news strategy committee," his downfall had culminated in a meeting where he presented his committee's results to Zannino, Crovitz, and a few other executives. He, as planned, had proposed combining some of the Journal and Newswires bureaus and reported that the combinations would save between $5 million and $7 million in ongoing newsroom costs.

  The combinations carried huge political costs for Crovitz and Zannino. If they followed Ingrassia's suggestion, they would finally be taking on what many in the Journal newsroom had dreaded for years. The moves would worsen morale and leave Zannino taking the blame for ruining the newsroom—all for a paltry business return. After Ingrassia presented his ideas—to get the Detroit bureau and the Washington bureaus of the Journal and Newswires to work together on all stories and plan coverage together—and the relatively small cost savings estimates, Zannino had blown up, visibly agitated at Ingrassia's suggestion and what, to Zannino, seemed like his tin ear.