War at the Wall Street Journal

by Sarah Ellison

  9. Personal and Confidential

  ON FRIDAY, APRIL 20, 2007, at 5:34 p.m., Paul Steiger received an e-mail that would indelibly mar the otherwise impeccable reputation he had worked more than forty years to establish. It came with a simple heading:

  PERSONAL AND CONFIDENTIAL FROM RUPERT

  In Steiger's world, that meant only one person. As the editor of the Journal, he was accustomed to dealing with chief executive officers, so he wasn't intimidated. But as he read the message, Steiger immediately grasped its import: he was now part of News Corporation's takeover strategy.

  Paul,

  I thought it useful to write you a personal note, given that we are all about to be in the midst of a maelstrom of rumor and speculation. More than anything else, I wanted to assure you that the journalistic principles that you have embodied at The Wall Street Journal will remain sacrosanct. There are many good reasons for buying—or at least attempting to acquire—Dow Jones ... screwing up the Journal is not one of them.

  1. I have absolutely no intention of sending in the bean counters. I believe in serious investment in serious journalism and that the global need for high quality journalism has never been greater—nor more potentially lucrative.

  2. There is no doubt that Marcus Brauchli is a worthy successor, though he has a hard act to follow. Robert Thomson, who has known Marcus for many years, speaks without reservation in his praise of Marcus's editorial ability and his integrity.

  3. What is on the Opinion pages will never be allowed to flow into the news pages. The two must be kept distinct and while I sometimes find myself nodding in agreement with the comment and commentators, even I occasionally find the views a little too far to the right.

  4. If there are serious concerns among the journalists about "Rupert Murdoch," then we should discuss how best to handle it.

  Paul, I look forward to chatting at greater length at a time that is appropriate and convenient, either in New York or in LA.

  Rupert

  Even before he wrote the e-mail, Murdoch had heard from his intelligence gatherers Thomson and Ginsberg that Steiger knew about the offer, which was now three days old. He had calculated that Steiger wouldn't come out against him. Temperamentally, the recently retired managing editor wasn't hotheaded. He wouldn't throw himself across the tracks to stop a Murdoch deal. Murdoch understood that winning over the Bancroft family meant winning over the leaders of the newsroom. Steiger had more moral weight than anyone else, so it made sense that Murdoch would court him personally.

  The letter, like most communication about the offer, passed through Thomson, Ginsberg, DeVoe, News Corp.'s general counsel Lon Jacobs, and others before making its way from Murdoch's computer to its target. It showed self-awareness and savvy, and a willingness to promise what the circumstances required. It also changed the dynamic of Steiger's silence about the offer. Now, Murdoch had approached him directly.

  During Steiger's forty-year journalism career, he had seen a generation of businessmen like Rupert Murdoch emerge from anonym ity. The e-mail from Murdoch wasn't a complete surprise. Steiger had heard about Murdoch's offer for Dow Jones earlier in the week from Nikhil Deogun. He had approached Joseph Stern and Peter Kann with what he had heard from his editors. When Kann confirmed that an offer had been made, he did so under a promise of confidentiality that was customary for the two men. Steiger had a rigorous policy of not aggressively covering the business of Dow Jones in the pages of the Journal. "We don't scoop ourselves," he would explain to successive media editors and reporters eager to dig into the family undercurrents lurking behind the still façade of Dow Jones's ownership. Steiger and Kann had started a year apart from each other as reporters at the Journal and had grown up, more or less, as products of the institution.

  Steiger's position at Dow Jones had become something of a hybrid in recent years. He was a member of the company's "Senior Leadership Team"—an effort begun several years before to include the company's journalists in discussions of company strategy in a time of increasing business difficulty. Such discussions would have been verboten even ten years earlier. But at all papers, news editors and business executives had begun to take the blurring of the separation between the two halves of the company for granted. Long gone were the days when there was open antagonism between them—there was too little money for that.

  But this piece of news was different, and Steiger faced a decision. He could run the story. His own newsroom had gotten the tip. The offer was, under any circumstances, the biggest news story ever affecting Dow Jones. And it involved Rupert Murdoch, mogul of moguls. But Steiger had limited himself in his promise not to pursue the story, and he wasn't going to break the promise, even when the news was so big that it was for the Wall Street Journal the story to end all stories.

  Almost immediately, the former managing editor of the Journal forwarded the e-mail to Zannino and Stern, suggesting the three men talk. He alerted Daniel Hertzberg, his longtime senior deputy, but swore him to secrecy and asked him, as the hour grew late on Friday evening, to be prepared to cover the story in case something changed. By the time Steiger got on the phone with Zannino and Stern, he had made his decision. He was keeping quiet. "I feel this came to me as an executive of Dow Jones," Steiger offered, before either of the other executives had even asked. Many in his newsroom would note that Steiger, who had accumulated a significant chunk of Dow Jones stock during his tenure, stood to make $7 million if the Murdoch offer succeeded.

  He then took an additional step, enveloping three editors—Brauchli, Hertzberg, and Deogun—in that same executive cloak. The logic was strained. Brauchli now was a top executive of Dow Jones by dint of his role as managing editor, but he'd been in the role for only thirty-six hours. While Deogun gathered valuable intelligence from non–Dow Jones sources such as Ginsberg, he was first a journalist and hardly a business decision maker. Ditto for Hertzberg. "I made the only decision I could make," Steiger would later say, though he wished, in retrospect, that he hadn't put himself in a position that boxed him in. Once he had, however, he felt there was no choice but to see it through.

  Steiger told Zannino and Stern that weekend that he would respond to Murdoch. He waited until Monday morning to do so and sent his own e-mail at 6:34 a.m. It read:

  PERSONAL AND CONFIDENTIAL

  Rupert,

  Thanks for your email. I very much appreciate your kind words about Marcus and me, and your endorsement of strong, unbiased news coverage. Any sale of DJ would require the approval of people well above me, particularly the Bancroft family, and I wouldn't be involved.

  Sincerely,

  Paul

  Over the course of the next several days, a small coterie of editors learned of the bid, including Richard Turner, the editor of the paper's media and marketing group. He conscripted Martin Peers, his deputy and a native of Australia who had worked for the New York Post under Murdoch, to prepare a story for whenever the higher-ups de cided to pull the trigger. Peers sat in his office for days, hiding his task from the rest of the newsroom. He balanced Harold Evans's book Good Times, Bad Times on his lap, typing up the Journal story that wouldn't appear until almost two weeks following Murdoch's e-mail to Steiger. Deogun, Brauchli, Hertzberg, Turner, and Peers all waited. But as any good reporter knows, a story as big as this one wouldn't hold forever.

  10. Not No

  SCARCELY A WEEK after Murdoch made his official written offer for Dow Jones, on April 24, Mike Elefante held a meeting of family members at Hemenway & Barnes's office. Elefante had scheduled bankers from Merrill Lynch, the bank hired to represent the family, to present the deal to the assembled Bancrofts, who numbered at least twenty. Elefante knew he was going to need help navigating through this minefield. His relationship had already begun to fray with the Hill branch of the family over what they saw as Hemenway & Barnes's poor management of their fortune. Elefante wanted some big guns behind him. In addition to the Merrill bankers, he brought in Wachtell, Lipton, Rosen & Katz, home of the legendary
mergers-and-acquisitions lawyer Marty Lipton.

  Michael Costa, a media banker from Merrill, presented the bank's "book" on the offer. Costa gave an easy presentation, showing the huge chasm between how little the market valued Dow Jones as an independent company and Murdoch's heady valuation. In the world of dry banking "books," the diagram was a blockbuster. None of the advisers had ever seen quite such an overvalued offer.

  This deal presented a dramatic change for Costa. He had just recently finished advising the Tribune Company—a newspaper company at war with its own set of unruly family shareholders, the Chandlers—to take itself private in a highly leveraged deal backed by the inexplicably and eternally confident real estate investor Sam Zell. The attempt to sell Tribune, an effort that had dragged on for almost a year, had been a painful warning sign for would-be newspaper investors. Nobody wanted to buy it. The company's bureaucratic corporate parents had picked away at it for years. The Chandlers, who still owned a large chunk of the company despite selling the Los Angeles Times to Tribune seven years earlier, had desperately wanted to sell. To unload the company, they had to agree to heavy debt that threatened Tribune and its newspapers with bankruptcy.

  With Dow Jones, the situation was the polar opposite. Rupert Murdoch, an enthusiastic buyer, was offering a mammoth premium for the company. The Bancroft family was reluctant to sell, but younger family dissidents were breaking through the clan's previously united front. All Costa needed was a little family schism to make this deal go through. Then they could all help themselves to Murdoch's money and go home happy.

  The schism wasn't difficult to find. In the meeting, Crawford Hill urged his family to consider the deal seriously. "Put aside your emotional reactions to Rupert Murdoch and think of the benefits such a deal might present to the family," he said. He and other members of the family had put their own emotions aside for years, he said. After all, "for some of us it's been very difficult to accept the Wall Street Journal editorial page direction. It's antithetical to our beliefs." Just then, his uncle Bill, Bill Cox Jr., who had worked for the company for twenty-five years in its advertising and circulation departments and was known more for his stellar golf game than his business acumen, interrupted his nephew. "It's the best damn paper in the country!" he shouted, in what was a frequent refrain from the man who was the closest thing the family had to a patriarch and remained unfailingly loyal to the institution his mother—the ebullient Jessie Cox—had taught him to love. He slammed his cane on the ground before launching into his defense of the Journal and his deep reservations about Rupert Murdoch.

  "Uncle Bill's" impassioned defense went beyond his aversion to Murdoch. His nephew had just crossed a sacred line: he had criticized the Journal's content. Doing so violated the family elders' core belief in hands-off ownership. Any discussion of the editorial content or direction of the Journal was verboten, seen as a slippery slope to ward interfering with the paper's greatness. To Crawford's generation, however, their parents had misconstrued that message to mean that nobody in the family could criticize the business management of Dow Jones & Company. Crawford saw the business of Dow Jones as separate from the management of the Journal and resented how Peter Kann always tended to blur the line between the two.

  "I'm sorry, but I'm going to finish my point," Crawford said, his deep voice rising. "You've interrupted me before but this is not even the main point I'm trying to make. I'm trying to get people to focus on the facts of this deal, not their emotions." Crawford continued his plea but didn't sway his uncle.

  Crawford's brother Tom asked all the family trustees present—from Hemenway & Barnes; Northern Trust; U.S. Trust; and Holme Roberts & Owen of Denver—what they thought of the offer. These lawyers held enormous power over the family's control of Dow Jones. Instead of providing guidance to the family, the lawyers were silent. Aware of the tightrope they walked between various family personalities, both for and against the deal, none felt comfortable giving Tom a view.

  After years of slowly building distrust, the Bancrofts communicated uneasily, now mostly in tight-jawed polite exchanges. Most of the family feared that Billy and Elisabeth would leak the news of Murdoch's offer to the press; the family hadn't forgotten their dalliance with Fortune magazine a decade previously. Neither was invited to the meeting in Boston, which wasn't much of a loss. Like the many other meetings the Bancrofts had held over the years to discuss Dow Jones, very little happened that changed the family's static position toward the company.

  Elisabeth had no desire to restart the hard work she had embarked upon ten years before. Rupert Murdoch had done quite enough with his offer. She had a larger circle of allies now. What had been unformed dissatisfaction with Dow Jones's management had found a focal point in the $5 billion bid. The rich offer promised to make everyone in the three branches of her family much wealthier than they were before he came along.

  Each family member had a different stake in this drama. Because the three branches had inherited equal parts in the overall fortune, some Bancrofts, five generations on, stood to get a much smaller pay out than others. Elisabeth, for instance, was the only beneficiary of her mother's death and would benefit from the sale of Dow Jones by getting one-ninth of the entire family's fortune. Leslie Hill was one of seven children and therefore stood to inherit only one-forty-second of it. Perhaps those simple numbers explained why two of the family's strongest-willed women stood on opposing sides of the debate over Murdoch's offer.

  Leslie's years as a pilot made her sympathetic to labor unions and mistrustful of what she saw as overpaid executives. Elisabeth, a champion horsewoman who had never worked a day in her life, didn't ponder such disparities. She knew that she was incredibly fortunate. Even when it came to horses, she enjoyed the buying and selling of her stallions—unlike some other owners who remained attached even after the best racing years were past. To remain in her fortunate state required some adjustments to her stock portfolio, and this was finally the moment when she might free herself of one of her most disastrous investments.

  There remained one potentially large obstacle: her uncle Chris. He was the sole family trustee on the Article III trust of which she was a beneficiary. The trust owned 3.48 million super-voting shares in Dow Jones and therefore controlled 13 percent of the company's voting power. Chris Bancroft would grow weary of dealing with his cousins throughout the summer.

  Two days after their meeting in Boston, the family reconvened on the phone to talk about their questions and have a "family-only" discussion away from the bankers and lawyers. On the call, Chris Bancroft, who had skipped the Boston meeting, said he was voting against the offer. He told his family he was against the deal with Murdoch, but Chris had previously sent messages through his Texas business partner to the Murdoch camp—Jimmy Lee, in particular—that gave the impression he might favor a sale. Murdoch didn't know about Chris's vote against the offer. He saw him as an important pawn in the negotiations; he thought he could sway him.

  On the call, Buzzy Stevenson, married to Jean, one of the New England sisters, told his in-laws the offer was "not in the interest of the family." Leslie Hill held a different view. She said the offer needed to be explored, though she expressed her "regret, sadness, and disap pointment" that it did. She was not saying she wanted to accept the offer, but she wanted to hear more about it.

  Dow Jones's board wanted to know where the family stood. Throughout the discussion on the phone that day, it became clear that almost no one in the family was ready to vote yes to accept Murdoch's offer. Nor were they ready to reject it out of hand. If the Bancrofts weren't solidly against the bid for the company, the board wanted to start a dialogue; they had the "common" shareholders to think of. They couldn't be caught sitting on an offer this rich for shareholders unless they could put the blame for it squarely on the shoulders of their controlling family. For the Bancrofts, giving up a century of ownership would take a bit longer. In classic euphemistic style, Hemenway & Barnes came up with another way to gauge the family, one
that would allow the Bancrofts to edge closer to Murdoch but maintain the appearance that they were still holding the line. Elefante asked them to say whether they were voting no or "not no."

  The same day as the Bancroft family phone call, Thursday, April 26, Dow Jones chairman Peter McPherson received a fax from Murdoch, who was growing impatient with the lack of a response to his generous offer. McPherson had already responded noncommittally to his offer letter from the week before.

  Since that response, Murdoch had received only radio silence from the family and the company. As the Bancrofts discussed their future on the phone, McPherson fielded another fax from Murdoch, asking the family for a meeting. He reminded McPherson that "we have a history of long stewardship of great newspapers (for instance, 'the Times,' 'The Sunday Times' and 'The Australian'). I always see my role as supporting the editors and publishers of these newspapers." He said News Corp. would be "the ideal partner to grow and expand your company, as well as protect such a vital public trust." Murdoch knew his reputation, and when he proposed a meeting with the Bancrofts, he reminded McPherson that he had family, too, as well as a group of top editors, whom it might be helpful for the Bancrofts to meet. "Such a meeting would at least give them better understanding and clear up many possible misconceptions."

  The next day, Friday, April 27, Elefante knew the tally, at least so far, of those who had weighed in. Shockingly, it wasn't enough to rebuff Murdoch. Was it possible that this family, so long seen as an impenetrable fortress around the prized Wall Street Journal, was so easy to topple, so ready to sell out? Even Elefante, who knew all the fissures and weaknesses in his largest client, couldn't quite believe it was all moving so fast.