War at the Wall Street Journal

by Sarah Ellison

  Elefante sent out a follow-up note to all family members informing them that given the votes counted so far, the family didn't have a majority to turn down Murdoch's proposal. That message rattled several Bancrofts, who had never seriously considered that their legacy might be taken away from them so quickly.

  Two days later, on Sunday, April 29, at 10:00 a.m., Ann and Stephen Bartram, sister and brother-in-law to Billy Cox III, sent an e-mail to their relatives offering to buy out those family members who wanted to sell. They had talked to some of their cousins and aunts and uncles and signed their names to the proposal. Ann and Stephen Bartram didn't have the faintest notion of how to finance such a transaction, however, and many of the people whose names they signed on the letter were only theoretically interested in buying out their fellow family members. Still, Chris Bancroft sent an enthusiastic e-mail supporting the buyout proposal. But at 1:00 a.m., April 30, the family received another e-mail from the Bartrams, who, with the benefit of fifteen hours of reflection, retracted the offer. The Bancroft family was back to square one. Then, the morning of May 1, the Bancrofts ran out of time.

  In journalism, the greatest crime is getting scooped.

  David Faber, a reporter at General Electric's CNBC financial news channel, had been tipped off about Murdoch's offer. Faber e-mailed Gary Ginsberg at News Corp. the morning of May 1, 2007: "I know."

  Ginsberg called Murdoch's office to tell him that they were about to be outed; things were about to change. The night before, Murdoch and his executives had met with their bankers. The stocks of both News Corporation and Dow Jones were acting up, and they had been bracing for the news to break. Murdoch, aware of McPherson's veiled threat in his last note to keep the news confidential, immediately sent him a fax:

  Dear Mr. McPherson:

  We have just been approached by email by a reporter from CNBC who claims to know something of our talks. We have not spoken to him. However, if you don't already know it I thought I should warn you.

  In the event that something is broadcast, we should consider whether both of us say nothing or try to put together a bland joint statement. The danger is that so many bankers, lawyers and directors are now "in the know" something may be said which would not be in the interests of either side.

  Sincerely,

  Rupert Murdoch

  But before he could hit the Send button, Faber's report was scrolling across the bottom of the screen (Murdoch had to turn from his Fox News channel to CNBC to get the story), so he quickly added a postscript:

  As I sign this it is now on CNBC with the correct price!

  When CNBC reported that News Corporation had made an unsolicited $60-a-share offer for Dow Jones & Company, the newsroom of the Wall Street Journal issued a collective shudder, not just because the unthinkable had happened—Rupert Murdoch had made a bid for the paper—but that the information was coming from a rival news outlet.

  When CNBC broke the news shortly after 11:00 a.m., the Journal's editors put media editor Martin Peers's story—in the works ever since Journal managing editor Paul Steiger received his e-mail from Murdoch nearly two weeks before—on Dow Jones Newswires.

  As happened at many points during the summer, Mike Elefante was caught off guard by the breaking news. Although Elefante had spent the past two weeks polling the Bancroft family on how they felt about the offer, the family was so disorganized, and Elefante's communication with them was so strained, that even now, after the news that would change all their lives had broken, he was still uncertain about their stance as a group.

  If the family turned down the offer immediately, the company's board would do the same, arguing that its hands were tied by its controlling shareholder. The family's super-voting stock, with ten times the voting power of a regular common share, had long gone out of fashion in corporate America. Such dual-class structures hung on in the newspaper industry as a vestige of a time when the press occupied a more respected rung on the societal ladder and family values trumped shareholder activism.

  By 2007, that view was not only unpopular; it was mocked. Shareholders were demanding not great journalism but great financial returns. Newspaper company executives shared in the notion. Focusing on profits made the companies stronger, the argument went, and strong companies produced more and better journalism. The directors subscribed to a more extreme version of this idea: that Dow Jones existed to make money for its shareholders. They believed they were legally obligated to ensure that the company do so.

  If the family was on the fence or in favor of the offer, then Dow Jones's board felt an obligation to carry out its "fiduciary duty" to the shareholders of the company who had entrusted them with their hard-earned dollars. Those shareholders weren't concerned about the Bancrofts' emotional attachment to the company, and they weren't about to subsidize it. As soon as the "common" shareholders found out that Murdoch had made such a dizzying offer for Dow Jones, the weight of all of Murdoch's $5 billion would fall on the Bancroft family.

  Elefante couldn't corral the Bancrofts; he was still trying to tally the family's stance that morning when the news broke.

  Zannino called him. "Mike, I need to know where the family stands," he said, desperate to know how he was going to handle this situation if they turned the offer down, incredulous that they might. "I'm going to need a bit more time," Elefante responded. "We're trying to get in touch with a few people and be as thorough as we can." The events were overtaking both men. After CNBC reported the news of Murdoch's offer, the New York Stock Exchange briefly halted trading in Dow Jones's stock, pending a press release from the company. The halt lasted less than ten minutes, and the release gave little in formation. "Dow Jones & Company today confirmed that its Board of Directors has received an unsolicited proposal from News Corporation to acquire all of the outstanding shares of Dow Jones common stock and Class B common stock for $60.00 per share in cash, or in a combination of cash and News Corporation securities," the release read. "The Board of Directors and members and trustees of the Bancroft family, who hold shares representing a majority of the Company's voting power, are evaluating the proposal. There can be no assurance that this evaluation will lead to any transaction."

  After Zannino spent several hours sweating in his office while Elefante frantically called Bancrofts, Elefante was finally able to confirm that enough members of the family were against the offer that he could say no to Murdoch. "A substantial portion" of the family was against the deal, he told Zannino. But Elefante wasn't specific enough for Dow Jones's outside counsel, Fried, Frank's Art Fleischer. If the board was going to make all the rest of its shareholders forgo Murdoch's billions, the Bancrofts were going to have to be a bit more specific about how many of them were against the deal. The board was in, as one director inelegantly put it, "ass-covering mode."

  Elefante spent several more hours tallying the total and came back with a stunning clarification: Bancroft family members representing "slightly more than 50 percent" of the company's overall voting power were against the deal. The slim margin showed that it would take only a nudge for the Bancrofts to sell the company.

  By the end of the day, Dow Jones's shares had increased from $36, roughly where they had been trading for the past several years, to $56, a 55 percent increase. In that single day, more people traded the stock than in any day in the past thirty years, and more than two-thirds of the shares changed hands. The company, in effect, had been sold—not, for the moment, to Rupert Murdoch, but to a new breed of investors. These investors—hedge fund managers and arbitrageurs—were not Dow Jones's sleepy circle of shareholders. They were investors who looked for significant "events" to drive a stock price. Hanging on to shares for the long term wasn't part of their plan. They were betting Murdoch's offer would succeed, and they would do everything they could to make sure they were right. Zannino and every other member of the board felt that this shift would make Dow Jones "ungovernable" if the sale fell through. Shareholder lawsuits would be plentiful. Directors would resign. The ne
w shareholders would lobby to nominate their own directors, who would put the company up for sale. "It's going to be nigh impossible to put this genie back in the bottle," Zannino thought.

  The Journal's newsroom was hoping otherwise. The day after the offer became public, a reporter rallied his colleagues to communicate directly with the Bancrofts.

  Investigative tax reporter Jesse Drucker urged his fellow reporters and editors to appeal to the Bancroft directors—Lisa Steele, Leslie Hill, and Christopher Bancroft—who would be the main people through whom the family needed to communicate. Noting that the family was under "enormous pressure," he wrote in an e-mail to his colleagues, "A short letter addressed to each of the three—make a separate copy for each—urging them to stand firm can only help our cause."

  Chris Bancroft responded (in a letter he printed out on his letterhead: "Chris Bancroft Operations") by saying how much he appreciated the reporters' commitment to Dow Jones. But he was cryptic in his response. "I want to reassure you that my commitment to our common value has not changed and I will do all I can to preserve this special environment that encourages your work," he wrote. Such a statement left all his options open.

  Shortly after the company confirmed the offer on Tuesday, the union representing the company's employees released its own statement against the bid. "The staff, from top to bottom, opposes a Rupert Murdoch takeover of Dow Jones & Co.," it said, expressing concern that Mr. Murdoch would destroy the company's editorial independence and would cut jobs as part of the deal.

  The paper's reporters were desperate to preserve the unusual culture of Dow Jones under Peter Kann and the Bancrofts. That sensibility, and of course Paul Steiger's, allowed the paper to ferret out stories that were off the beaten path and seemed arcane, until they became required reading. Ralph Nader, hardly a friend of the Journal's editorial page, once proclaimed that the Journal was "the most effective muckraking daily paper in the country ... the main reporter in our country of corporate crime."

  The Journal also pursued the unexpected feature and ignored the pressure of the pack, especially for sensational stories that were tabloid fodder. For example, in 1993, the Journal famously didn't report on Lorena Bobbitt for a month and a half, even as the news blanketed the pages of other papers. Then the paper broke its silence with a long profile of the urologist who reattached John Bobbitt's penis. That was the one and only mention of the Bobbitts in the Journal that year. Such aversion to the popular story would end under Murdoch, the newsroom knew.

  Leslie Hill couldn't believe what she was hearing. Richard F. Zannino, the man she had advocated to become the CEO of Dow Jones just a year and a half earlier, was giving up. Leslie had helped push the early ouster of CEO Peter Kann and appointment of Zannino as his replacement. Yet here Zannino was, less than two years later, making the case for selling to Murdoch. Standing in front of his hastily assembled board on May 2, 2007, the day after the offer became public, Zannino looked out on the directors and knew he had to deliver a straightforward message that wouldn't be misunderstood. He wanted them to know the advantages of a tie-up with News Corp., and he also wanted them to realize what they were getting into if they turned it down. All Leslie heard was a man interested in selling out to avoid the hard work he had promised he would do to improve the company her family controlled.

  The directors and advisers around the long wooden table represented an overlapping web of conflicting interests. Zannino had teed up this offer with his numerous meetings with Murdoch. The independent directors, though wildly different in their personal attachments to the company, felt they had little choice but to speak in favor of the deal; anything else might get them sued by the company's common shareholders. The family members on the board were their own mass of confusion and conflict. Not one of them was immune to the sentimental pull of their family's history with the company, but they took wildly different stances on what was best for the company.

  Zannino's reaction to this assemblage of delicate alliances was to retreat to the familiar bland language of "shareholder value." Yes, there was "the potential risk of loss of journalistic independence," he told the group, but on the other hand, the benefits of the deal, the firepower News Corp. could offer the cash-strapped Dow Jones, would give the company the ability to go "to the next level" in a number of different businesses. Furthermore, the premium Murdoch was offering—the amount above the existing price—was beyond Zannino's wildest imaginings. He would be delivering shareholders a better deal than they ever could have imagined under Peter Kann. This last comparison wasn't explicit, but it didn't need to be. Zannino was the anti-Kann.

  The meeting was disastrous. Zannino appeared, to almost all who attended, to have given up. A CEO was to protest a bit more when faced with his imminent irrelevance. Instead, Zannino seemed to embrace his defeat at the hands of Murdoch and profess immediately that he and his management could not offer what Murdoch could.

  Hill listened to the man who she had hoped would deliver her company and her family a bright future. He was ready to give up and sell out. She looked at her cousin Lisa Steele, whose eyes were tearing up at the dismal prospects for Dow Jones. "Just when we were making progress," she thought, outraged.

  From that moment forward, Zannino's board mistrusted him. Some, like Harvey Golub and some of the other senior directors, thought that Zannino was green, too inexperienced and uncreative to handle the myriad pressures facing him. Others believed, as did Leslie Hill, that he wanted to sell the company out from under the family and walk away with a big check. Leslie Hill and Harvey Golub both told Peter McPherson, the new chairman, that Zannino seemed out of line and in favor of a deal with Murdoch. McPherson told Zannino that some on the board were worried and urged him to write board members a letter to clarify his neutral position. Lewis Campbell, the CEO of Textron who was in favor of the deal from the get-go, told him, "You did it exactly right, but that crowd doesn't know that." Zannino began to worry. Five days after the meeting, he wrote a letter to the directors to assure them that "my sole intention in making these comments was to summarize the pros and cons of selling or not selling Dow Jones." He was furiously backpedaling in an attempt to maintain credibility with his directors. The letter continued:

  As CEO I'm totally committed to doing everything in my power to help Dow Jones's continued success as we go forward. Please know that this is the way I felt last Wednesday when the family confirmed its decision not to sell. And it's the way I feel today.

  More importantly, it's the way we are running the company, as my management team is likewise committed, engaged and focused. I also want to say I appreciate the confidence of the Bancroft family in this great company.

  I look forward to seeing you all at next week's regularly-scheduled meeting. Until then, please feel free to contact me with any comments, suggestions or questions.

  Sincerely,

  Rich

  The letter only served to highlight the awkwardness of what had happened a few days before in the boardroom. When portions of the letter appeared in the Journal a month later, it fueled Zannino's innate defensiveness and spread what would become the pervasive mistrust in the boardroom.

  The finger-pointing inside Dow Jones began almost immediately after Murdoch sent his offer. But amid all the blame was an epic clash between the network of bankers and lawyers incentivized to make a deal and a group dedicated to the values of the old journalistic establishment. Mike Elefante, an unsuspecting lawyer with no experience standing up to the force of Wall Street's deal machine, was stuck between these two worlds. One of the most unapologetic members of the old establishment was Jim Ottaway, who had sold his father's community newspaper chain to Dow Jones thirty-seven years earlier and who had a year before retired from Dow Jones's board. Ottaway came to visit Elefante on Friday, May 11, to commiserate about the unfortunate situation in which the Bancrofts found themselves. Ottaway disapproved of Murdoch. Days before, he had penned an impassioned plea to the Bancroft family not to sell to Murdoch. His
family was a sizable shareholder in Dow Jones. They owned 2 percent of the company's shares, some of which were super-voting B shares, which granted them control over 7 percent of the company's voting power. But Ottaway had been born with money and wasn't overly concerned with making too much more of it. A friend of the Sulzbergers, with whom he socialized in the raggedly upscale rural enclave of New Paltz, New York, Ottaway carried himself like a rumpled professor. He had owned an organic farm upstate, donated money to his alma mater, the Phillips Exeter Academy, and wore slippers when receiving visitors at his woods-surrounded home. "You can't make it up," marveled one of Dow Jones's advisers. That day in the Hemenway & Barnes offices, he voiced his strong aversion to Murdoch and his hope that the family would resist the temptation to sell.

  Elefante showed up the next day, a Saturday, at his office to clear his head and work on potential structures to keep Dow Jones independent. He and Mike Puzo, another major Bancroft trustee at the firm, realized quickly that of the three branches of the family, two contained agitators who wanted to sell. Jessie Cox's grandchildren—among them the Hill brothers, Tom, Mike, and Crawford; and Billy Cox III, known in the family as Billy "three sticks"—were likely sellers. Then there was Elisabeth Goth Chelberg, who had long before given up her public agitating but still harbored concerns about Dow Jones. Elisabeth's uncle Hugh Bancroft III, the late Bettina Bancroft's half brother, seemed ready for a sale.