War at the Wall Street Journal

by Sarah Ellison

  The managing editor had to be the CEO's cover. If Zannino suggested something that would damage the Journal, he wanted someone like Paul Steiger in that role, who had the political skills to navigate the retrenchment without calling attention to it. Ingrassia was too blunt and too insensitive in his handling of the newsroom to be trusted in the spot. Zannino had upbraided Ingrassia in the meeting and stormed out. Ever since then, the choice for managing editor had seemed inevitable—it was Marcus Brauchli. But to be certain, Zannino and Crovitz had created spreadsheets and lists of desirable attributes an ideal managing editor would possess. They ranked both Brauchli and Ingrassia. Even by the spreadsheet, Brauchli won. Zannino was certain of this, but it took Crovitz longer to come to agree with his boss. Crovitz and Ingrassia had known each other for a long time, through Ingrassia's bout with lung cancer and years in the newsroom, though always on opposite sides of the Chinese wall between the news and editorial pages. Besides, he had virtually promised him the managing editor job; backtracking was going to be painful and embarrassing.

  Unlike the "news strategy committee," Brauchli's chosen project fared well. He had been the news man behind the "Journal 3.0" redesign. The project achieved the aforementioned shrinking of the paper and the placement of an advertisement on its front page. Brauchli and Crovitz had worked together on launching it. Crovitz had written in his publisher's note the day the first smaller paper appeared: "Your print Journal will now focus even more on 'what the news means,' beyond simply what happened yesterday."

  Crovitz told readers that the paper would "now aim to make eighty per cent of your Journal what-it-means journalism." Brauchli had chimed in with his own explanation of the paper's values. "The Journal is not really about pack journalism," Brauchli said. "We assume people will get general-interest news not aimed at our audience [elsewhere]. We then step back from the news."

  The paper had been operating in its new format for over three months the day Brauchli received Crovitz's call, and even though it had been panned by some—the Columbia Journalism Review headlined its story on the redesign "Shrinky-Dink WSJ"—the effort was deemed a success by Zannino and the board. So when Crovitz, entirely unaware of the Murdoch offer that would change all their lives so profoundly, called Brauchli the afternoon of April 17, he asked simply, "Are you planning on going to the annual meeting tomorrow?" Both he and Brauchli knew the new managing editor would be announced the following day after the annual meeting. Both men knew the job was Brauchli's. When Brauchli replied that yes, of course, he was attending the meeting, Crovitz said, "If you'd like I thought we could walk over together." It was the anointing Brauchli had been expecting. Paul Ingrassia wouldn't learn his fate until the following morning.

  That evening, after the Murdoch offer had come in and after Brauchli had gotten the signal he would be named the new managing editor, Brauchli and Murdoch's editor Thomson met for a drink that became dinner at the casual bistro French Roast on 11th Street and Sixth Avenue to discuss the day's events.

  Thomson had once lived nearby when he was the U.S. editor of the Financial Times, and the restaurant was one of his favorite haunts. In his signature black suit, Thomson arrived first, and the two sat down to a dinner of Niçoise salads (both men were slender, and Brauchli did not eat red meat) and opened a bottle of Pinot Noir. Thomson was there to gather intelligence for Murdoch, to woo Brauchli and get him on the right side. He wanted to convince Brauchli that Murdoch's ideas were good for the paper. The irony was that many of Murdoch's ideas for the paper had come from Thomson himself, during the many months the two had discussed the Journal. While Jimmy Lee gave Murdoch tactical assistance, Thomson was Murdoch's spiritual adviser for the takeover of the paper.

  Though Brauchli knew Thomson and Murdoch were close, he couldn't have imagined how much Thomson was reporting back to his boss. Thomson and Brauchli were friends and competitors and intellectual jousting partners. But Thomson's allegiance in this game was to Murdoch. For both Thomson and Murdoch, the Wall Street Journal was a vehicle for personal score settling. Murdoch was going up against the Sulzbergers; Thomson was going up against his old colleagues at the Financial Times, the ones who had so ill-treated him.

  The conversation immediately turned to what Murdoch would do with the paper once he owned it—Thomson seemed certain of that eventuality. Murdoch had his eye on the New York Times. Thomson explained to Brauchli how the Journal could better attack its cross-town rival. The Times was even more complacent than the Journal, he felt; its coverage left huge gaps for anyone who wanted to energetically cover the world's events for an American audience.

  Brauchli countered that the opportunities were really in digital media, as Bloomberg had demonstrated. News Corp. could consider getting back into the business Dow Jones had abandoned when it sold Telerate, but do it right this time. Their chatter was competitive and witty, as always. Thomson, who knew Brauchli was about to be named managing editor, shared some more personal bits of advice with his friend. He told him to ask for a hefty salary as the new managing editor, reminding him that British editors such as Paul Dacre at the Daily Mail made more than $2 million a year. Brauchli laughed and told him he would take it under advisement.

  The next morning, the morning of the annual shareholders' meeting, Crovitz stood before the board, dutifully presenting the analysis of both Brauchli and Ingrassia. He praised both men, and in the end, choked up by the betrayal of his friend Ingrassia, Crovitz concluded, "Despite my friendship and long working relationship with Paul, I think Marcus is the best choice for the job."

  8. The Wait

  AT DOW JONES'S annual meeting, the day after Murdoch's written offer arrived, the company's board members, executives, shareholders, and employees gathered in the low-ceilinged American Express auditorium adjacent to Dow Jones's Battery Park City headquarters. These scripted gatherings were almost aggressively low-key and had in the past provided the occasion for the Bancrofts' dinners at the '21' Club and their lunches with the Journal's Pulitzer Prize winners, but this day was significant for a different reason, and not just because Murdoch's secret offer had been unleashed, finally and irreversibly. Dow Jones was losing its true patriarchs: Paul Steiger and Peter Kann were retiring.

  Zannino's relationship with Kann had been frosty for much of the past year; it was almost sixteen months earlier that he had fired House. Now, Kann was stepping down as chairman. Finding his replacement had been a process of elimination. Irv Hockaday had been the most obvious choice, but he (fortunately, he must have thought, given the problems facing the company) was too old to take on the position. Harvey Golub had pleaded that he was too busy. Lewis Campbell, a sitting CEO at defense contractor Textron, was too preoccupied with his day job. Frank Newman was living in Asia, now the CEO of Shenzhen Development Bank. That had left Peter McPherson as the only senior director who wanted the post.

  Kann didn't have much time for PowerPoint and flashy presentations. Before the packed crowd in the small auditorium, he sat at the small folding table the company typically set up onstage, looking as if he would prefer to be addressing a more intimate event. He didn't speak like other CEOs. His presentations were halting, his shoulders hunched, his balding head modestly pitched forward.

  When he took the podium at that April meeting to make his last presentation as a company official, he cleared his throat and offered "a few final reflections on an institution it has been my privilege to play various roles in for the past forty-three years." He had stood on this stage before, but this time he had an explosive secret. (The offer from News Corp. had been presented to the entire board the night before, and he sensed with uneasiness that his successor, Richard Zannino, would take a decidedly different stance than Kann had when he was in the CEO spot.)

  Kann started off with genuine, albeit mild, praise for the changes Zannino had made at Dow Jones. "Yet," he continued, "even as Dow Jones—and the people of Dow Jones—embrace change we also are committed to a set of core values that should remain constant." T
o the executives and board members who knew about the tension that had grown between him and Zannino over the past year, the message was a veiled warning to the new chief to respect the institution he had inherited. To the few who knew about the News Corp. offer, it was a veiled plea to the Bancroft family not to sell.

  A smattering of union protesters usually showed up at the meetings to object to the endless stream of budgetary cuts eroding the employees' pay and benefits. Some of them were Kann's old colleagues from the newsroom forty years before when he was a young reporter in the San Francisco bureau of the Journal, before he moved to Asia, to renown as a reporter, and then to the business side. He knew the shareholder activists who were regulars at shareholder meetings and smiled every year when they got up to pillory his management. "Peter Kann should have stuck to journalism!" proclaimed the outspoken and ancient activist Evelyn Y. Davis at one such gathering.

  Kann, in his rambling, self-deprecating, yet oddly winning way, was at home at these meetings. The $60-a-share offer price would make a fortune for Dow Jones's shareholders—not instinctually Kann's first concern—and a boatload for its executives. Selling would be a way out of the numbing spiral of newspaper industry troubles, which had continued to plague the company after a year of Zannino's management. Still, selling to Rupert Murdoch would undoubtedly bring a new era to the Journal, one that was decidedly less imbued with the values Kann had defended all his years at the company.

  In closing, he said, he wanted to thank the Bancrofts directly. He had known four generations of the family. "Family values and company values have been one and the same," he intoned. "And in that we have been extraordinarily fortunate." He got a standing ovation from the crowd.

  Following him onstage was Zannino, who stood out among rumpled journalists with his cufflinks and tailored Italian suits. He was the second non-journalist in the history of the company to run Dow Jones. The only other was Clarence Barron's unfortunate son-in-law Hugh Bancroft, who had committed suicide so many years before. The precedent for someone of Zannino's pedigree was not promising at Dow Jones.

  Zannino had been awaiting Kann's retirement day. But now it would also be the day he would face the board to discuss News Corporation's offer. The timing wasn't coincidental. Murdoch knew Kann's reputation. Zannino barely knew the Bancroft family and had tried to make it clear in his meetings with Murdoch that he wasn't cut from the same cloth as Kann. Zannino knew the bid was coming, but still, the letter made it real. Even though he had done everything to invite Murdoch in, he had last-minute regrets. He hadn't yet had very long to right the listing company. "I could still do more," he thought.

  But he kept his thoughts to himself. The offer was still a secret, and Zannino knew that if shareholders ever learned of it, nothing he could do as CEO would measure up (except, of course, to sell the company). He could never create the same "shareholder value" through cost cutting or smart management. All told, the value of the offer was over $5 billion. The market thought Dow Jones was worth $3 billion. He knew it was the best offer he was ever going to get for the company, especially in a climate where newspaper stocks had faded from their former glory with very little hope they'd ever rebound. There wasn't a CEO in the newspaper business who looked smart.

  As he took the stage, he spoke subtly in contravention to Kann. "While we intend to remain leaders in print, there is no question that we must transform your company," he told the assembled crowd. "We can no longer afford to be as newspaper-centric as we've been in the past. Instead, we must become more brand-centric and content-centric, delivering our offerings wherever, whenever, and however our customers want them." The message was clear. Kann was constancy. The company needed transformation. He closed by saying, "The best is yet to come for Dow Jones—for our customers and our employees and for you, our shareholders." It was true that the best was to come for Zannino, who stood to gain $16 million, and for the Bancrofts, who would reap billions from a deal. But for others involved in this unfolding drama, what was coming was the worst.

  As with any takeover tale, at a certain point the advisers—the bankers, the lawyers, the PR specialists—keep the action going forward. The primary players in any deal are temporary, but the deal machinery that keeps an acquisition on track is a network of frequently acquainted and well-paid advisers who meet again and again on the corporate field.

  The afternoon of April 19, Richard Beattie, chairman of the white-shoe law firm Simpson Thacher & Bartlett, placed an urgent call to Gary Ginsberg. Beattie, a former Marine fighter pilot with a penetrating pale blue gaze that belied his gravelly, kind voice, was a lion of the mergers-and-acquisitions world and may have been one of the few participants in the summer's deal tango not wowed by Murdoch. He had seen such moguls many times before, and as would be expected of someone of his pedigree and longevity in the deal world, he was personally acquainted with many of this mogul's advisers and the dynamics at Dow Jones. He had worked with Jimmy Lee years before on, among other projects, fashioning a bid for Dow Jones on behalf of Rupert Murdoch. He had also worked with Steve Rattner and Arthur Sulzberger Jr. in 2003 in their unsuccessful bid to buy Dow Jones. His first inkling that something was afoot this time around at Dow Jones had come that morning when Lewis Campbell called. Campbell, who had never lost the twang of his Winchester, Virginia, roots, asked Beattie a hypothetical question: "What are the responsibilities of directors on the board of a family-controlled company if that company has received a really rich offer but the family isn't interested?"

  It didn't take Beattie long to figure out what Campbell was talking about. There was only one family-owned company where Campbell served as a director. Beattie recognized this stage of the deal. As in a divorce settlement, the rush for the best representation was on. Dow Jones's independent directors needed a good lawyer.

  As directors of a publicly traded company, the board had a legal responsibility to their shareholders to increase the company's stock price as much as possible. By that measure, Murdoch's $60-a-share offer was tough to beat. Yet they were faced with a family (and controlling shareholder) with a duty of their own: never sell the company. Even in their cut-and-dried role as company directors with a "duty" to get the highest price possible—they could face lawsuits from shareholders if they turned down a lucrative offer—many of them still opposed the deal initially, at least intellectually.

  Campbell had just taken over as the head of the board's governance committee, and it was his responsibility to make sure the directors handled this offer correctly with respect to their common shareholders, whether or not the Bancrofts decided to sell. Beattie explained that any offer for a publicly traded company could be shot down by the controlling shareholder if that shareholder was decidedly against a sale. In that case, the board of directors did nothing.

  The Dow Jones board was divided from the moment the offer arrived. Peter McPherson didn't want the Journal to be part of a conglomerate. Harvey Golub feared the deal might compromise his beloved ultraconservative editorial page (Murdoch was, after all, more of a pragmatist than an ideologue). Dieter von Holtzbrinck, himself a scion to the von Holtzbrinck German publishing empire, wanted to preserve the Journal as an institution. Even Frank Newman was initially wary of a sale.

  The others were more pragmatically minded, and Campbell, in particular, who never missed an opportunity to talk about how he valued his Textron shareholders, saw his reputation in peril if he allowed the deal to fall through. That was why he pushed to get Beattie hired. If one thing could be trusted, it was that, as Murdoch would later note, "as soon as you bring in a banker or a lawyer, they want to see a deal."

  Gary Ginsberg had worked for Beattie when Ginsberg was still practicing law. Both were fixtures in Manhattan's Democratic circles. Ginsberg was an assistant counsel to President Clinton, and Beattie had served in the Carter administration and remained a major fund-raiser and donor for the party. Theirs was a short conversation that day in April, but it conveyed a clear message.

  "This is
the last time we're going to speak," Beattie said.

  "You mean we're going forward?" asked Ginsberg excitedly.

  "I think you know what I mean," Beattie replied.

  Ginsberg immediately called Murdoch to share the news. "I don't think they're going to reject it," he said.

  Later that day, Peter McPherson responded to Murdoch's offer with an officially bland response of his own. The board wasn't going to reject the offer. It was, based on its legal counsel from Beattie and others, going to punt:

  Dear Mr. Murdoch,

  I am responding on behalf of the Board of Directors to your letter dated April 17, 2007.

  As you know, members and representatives of the Bancroft family, including trustees of family trusts, hold shares representing a majority of the voting power of the outstanding shares in the Company. Accordingly, no transaction opposed by those family members and Trustees can be consummated.

  The Board of Directors has asked the Bancroft family representatives to inform the Board of the views of the Bancroft family with respect to the proposed offer. The Bancroft family representatives have advised that family members and trustees will review the offer and will communicate to the Board of Directors their position.

  The Board of Directors does not intend to engage in any dialogue or communications respecting the offer until it has received the views of the controlling shareholders and has instructed the management accordingly.

  We understand, and trust, that the facts of your offer will be kept confidential.

  Sincerely,

  Peter McPherson

  Now, all eyes were on Bancroft family lawyer Mike Elefante and his clients, the thirty-five adult members of the Bancroft family and their children, whose fortunes hung in the balance.