War at the Wall Street Journal

by Sarah Ellison

  There were other factions steadfastly against selling to Murdoch. Chris Bancroft had told the family he was against Murdoch's offer. The three Jane Cook daughters would resist a sale, Elefante knew.

  He started there and tried to figure out a way, as Ann and Stephen Bartram had fleetingly suggested, for some of the family members to buy out the others. Elisabeth was a beneficiary of one of the family's big trusts, Article III. Could she be bought out by other family members who were against the sale? Elefante wondered. How could trustees who didn't want to sell avoid getting sued by beneficiaries who wanted their money? Puzo and Elefante spent hours writing indemnity agreements to allow a trustee to hold on to shares and avoid getting sued. The Hemenway & Barnes partners had reservations about the Murdoch offer. As trustees on the vast majority of the Bancrofts' trusts, they enjoyed tremendous power over the Bancroft fortune and, in turn, Dow Jones. However, they had calculated that about a third of the family wanted out. Ignoring their point of view, Elefante reasoned, was perilous. "I'm not about to throw my net worth away to make a point," he thought. He didn't want to be sued, didn't want the firm to be sued, and didn't want to spend the next ten years of his life in court with the Bancroft family.

  Murdoch was growing frustrated that he had heard nothing from the family since their initial refusal. He couldn't wait. Through their bumbling indecisiveness, the Bancrofts were turning out to be wily negotiators. Murdoch, impatient, began negotiating with himself. The same day Ottaway visited Elefante, Murdoch sent the family unsolicited additional sweeteners: a News Corp. board seat for one of them, and the promise of a protective structure for the Journal "exactly along the lines" of what was established at the Times of London. At that paper, Murdoch had agreed to a board of "directors" with the right to review the hiring and firing of senior editors.

  Still, he received no answer from the Bancrofts.

  Four days later, the business world added its own nudge toward accepting Murdoch's proposal: Thomson, a massive publisher of financial news and data, said it would buy international newswire Reuters PLC. Both firms were competitors to Dow Jones Newswires, one of the most profitable divisions of Dow Jones & Company. The tie-up was another reminder, at least to Elefante, that Dow Jones was outmanned. That impression was backed up by aggressive presentations in both Dow Jones's boardroom and family-wide conference calls with Merrill Lynch. Clare Hart, a Dow Jones executive who ran the company division that housed Dow Jones Newswires, presented the dire case for how newly combined Thomson and Reuters would cripple Newswires. Many in the boardroom thought she was exaggerating the damage and saw Zannino's hand in her frightening predictions. He had, by that time, lost the faith of many of his directors. But the presentation found fertile ground in the mind of Lisa Steele.

  Initially, Steele had great hope for the search for a "white knight" for Dow Jones. But after Pearson PLC and General Electric Company briefly teamed up to contemplate an offer for Dow Jones, Steele real ized that many of the potential white knights were in fact competitors to Dow Jones and would cut many more jobs than Murdoch if they merged with Dow Jones. To this Steele felt particularly sensitive. She felt she wanted to protect their jobs. She was slowly beginning to believe that Murdoch ownership might be the best way to do it. The merger between the Thomson Corporation and Reuters PLC would threaten to cannibalize the Dow Jones Newswires business. When Steele learned from CEO Rich Zannino and Clare Hart that as of July 1, 2008, Thomson would use Reuters's content exclusively instead of Dow Jones Newswires, she blanched. Sixty-five percent of Newswires revenue came from Thomson and Reuters, they told her, and that would dwindle to zero. What's more, Zannino reminded them, rival Bloomberg LLC was spending tens of millions of dollars hiring new reporters, and Yahoo! Finance was becoming an increasingly dangerous competitor.

  Even the media were warming to the notion of a deal with Murdoch. Enthusiastic pieces about Murdoch's offer appeared in the days following the bid. Despite the aggrieved stance that Murdoch's team would take—claiming they had been vilified universally by the press—the howls of protest that greeted him this time around were far more muted than they had ever been. Murdoch was gaining respectability. Or at the very least, he seemed the best option amid the increasingly dismal future of newspaper journalism. Andrew Ross Sorkin, the head mergers-and-acquisitions reporter for the New York Times, wrote a lengthy piece on Murdoch's offer entitled "What to Do When Rupert Calls?" a short five days after its existence became public. Sorkin would have to answer this question himself months later, when Murdoch would woo him to come work for the Journal, but for the moment, Sorkin was focused on Dow Jones's predicament. The piece, with all the hesitation and hedges of an experienced reporter, made a proposal: "Mr. Murdoch may be the perfect publisher of The Wall Street Journal."

  11. Exploring Alternatives

  ALMOST A MONTH into the public's knowledge of Rupert Murdoch's bid for Dow Jones, Mike Elefante asked Peter McPherson if he could call a board meeting. "Any reason in particular?" McPherson queried, helpless before this diffuse family who controlled his fate. "I'd rather just cover it at the meeting," Elefante replied.

  When the board convened via conference call at 5:00 p.m. on May 31, 2007, Elefante dutifully informed the directors why he had called them all to attention. The family had prepared a statement, he said. He read it to the assembled directors:

  As we have been since 1902, the Bancroft Family remains resolute in its commitment to preserve and protect the editorial independence and integrity of The Wall Street Journal, as well as the leadership, strength and vitality of The Journal and all of the other publications and services of Dow Jones.

  Since first receiving the News Corporation proposal, the Family has carefully considered and discussed among ourselves and with our advisors how best to achieve that overarching objective, while serving the best interests of the Company's various constituencies.

  After a detailed review of the business of Dow Jones and the evolving competitive environment in which it operates, the Family has reached consensus that the mission of Dow Jones may be bet ter accomplished in combination or collaboration with another organization, which may include News Corporation.

  Accordingly, the Family has advised the Company's Board that it intends to meet with News Corporation to determine whether, in the context of the current or any modified News Corporation proposal, it will be possible to ensure the level of commitment to editorial independence, integrity and journalistic freedom that is the hallmark of Dow Jones.

  The Family also indicated its receptivity to other options that might achieve the same overarching objective.

  The board members and advisers on the call were stunned. The wording of the release, pored over by Bancroft advisers and a lone family member, Michael Hill, the youngest of the Hill brothers, may have seemed benign, but to those who understood the language of Wall Street, it hung a large For Sale sign on Dow Jones & Company. After 105 years, the family was throwing in the towel.

  Richard Beattie, the lawyer for Dow Jones's independent directors, read one line of the family statement—"the Family has reached consensus that the mission of Dow Jones may be better accomplished in combination or collaboration with another organization, which may include News Corporation"—repeatedly out loud for the benefit of the Bancrofts on the call. Didn't they see what they were doing? he wondered.

  The family was setting in motion something they didn't understand. They took the wording of their statement at face value, even the throwaway lines at the end of the release that stated that a deal might not happen. They thought they would see who was interested in buying Dow Jones and then make a decision about whether or not to sell the company.

  That wasn't the way it worked. Beattie knew that the Bancrofts had done something that required the board to make independent decisions about the future of Dow Jones. No longer could the other directors channel the needs of their majority shareholder. The board was going to need to take action. It couldn't allow the family to float
this statement without starting a formal "process" of its own to sell the company.

  Mike Elefante did most of the talking for the family. Leslie, Lisa, and Chris said little. McPherson suggested that the four family directors hang up to allow the rest of the board to talk about the family's statement. Elefante quickly offered that the family would be happy to stay on and join the discussion if the rest of the directors agreed. McPherson conferred with Beattie, who said there was no way the board could reasonably discuss the family's position as the controlling shareholder in the company with the family directors participating. McPherson told Elefante that the family had to get off the call. The division between the Bancrofts and the board was deepening.

  So, too, were the divisions between board members. Harvey Golub, the Campbell Soup chairman and Peter Kann loyalist who said privately that he hoped the sale wouldn't go through, suggested that the directors might not need to put out their own release saying they would "explore strategic alternatives," which was code on Wall Street for "For Sale." The family's statement could speak for itself and the board could remain silent, he told the group. Lewis Campbell, the chairman of the board's governance committee, wasn't going to take the risk. If the family was open to selling the company, he thought, the board's obligation was to sell it to the highest bidder. To stand in the way of doing so—and in the way of common shareholders getting their money—was inviting lawsuits. "We have a knife to our throats," he said, his southern twang hardening. "We have no choice." The other directors agreed with him, and they quickly crafted their own statement, which they planned to release at the close of the board meeting.

  When the family directors rejoined the call, McPherson told them that given the family's stance, the board would release a statement saying that it had decided "to consider strategic alternatives available to the company, including the News Corporation proposal."

  Chris Bancroft listened to McPherson, bewildered. "Wait a minute," he said. "My family didn't understand that this meant we were for sale." Beattie, now slightly amused and exasperated, repeated the section of the family's statement that seemed to indicate, unmistakably, that that was exactly what the family understood: "'The Family has reached consensus that the mission of Dow Jones may be better accomplished in combination or collaboration with another organi zation, which may include News Corporation,'" he read. "You're telling the world the company's up for sale," Beattie said.

  Chris was becoming increasingly agitated and turned to his cousins for support. "Lisa, did you understand that this is what this means?" he asked Lisa Steele. "Yes," she replied. "Leslie, did you?" he asked Leslie Hill. "Yes," she said. Harvey Golub directed a question to Elefante, eager for some clarity: "Does the family stand behind its statement?" he asked. Elefante replied with as much certainty as he could. "There is consensus in the family in support of this statement," he told the board.

  By this time, Chris was desperate. "Is it too late for us to withdraw our statement?" he asked. Beattie had his laptop open on the conference table in front of him and had been idly scrolling through the Wall Street Journal online. As he heard Chris asking his question, Beattie's eyes jumped to a breaking headline that appeared on the site: "Bancrofts' Statement on Dow Jones Bid." The Journal's reporters had obtained an early copy of the statement and put it out. "It's too late," Beattie said. "I'm looking at the statement on the Journal's Web site."

  Earlier that evening, before the statement had been released, Marcus Brauchli was sitting in the Osprey Room in the Four Seasons Re-sort Aviara in Carlsbad, California, on hold, surrounded by sea-green walls stamped with a paisley print, staring at a pitcher of water in the center of a white-tableclothed table, waiting for someone else to join him on the Polycom for a conference call.

  He had been beckoned here by the CEO of Dow Jones, Rich Zannino, earlier that day. "Hi, it's Rich." The voice crackled on Brauchli's cell phone. "Oh, hi," Brauchli had replied. "Are you still in California?" Zannino asked. "We just want to make sure you don't get on a plane. We need you on a conference call at 7:00 p.m. East Coast time." Brauchli was attending the "D: All Things Digital" conference, the Dow Jones–organized gathering of California media and technology players. It was an unusually high-profile event for the usually staid Dow Jones; Journal executives and top editors typically attended, but it was the rare Bancroft family member, with the exception of Leslie Hill, who came every year. Brauchli took down the conference call number from Zannino and wondered what the call could be about.

  Brauchli got his answer when Nik Deogun, ever helpful with intelligence, e-mailed him to tell him that the Journal had gotten a copy of a Bancroft family statement that would be released as soon as a Dow Jones board meeting was completed later that day. The statement said the family would meet with Murdoch. They would consider his and any other offers that would maintain the integrity of Dow Jones and the Journal. Brauchli knew that the upcoming conference call was obviously going to revolve around coming up with some kind of editorial "independence" from News Corporation.

  Just then, Gordon Crovitz, the Journal's publisher, called Brauchli on his cell. Brauchli told Crovitz of the family's statement, eliciting what appeared to be a surprised reaction. Again, Crovitz found himself on the outside of the information loop. That small irritation aside, the two understood they needed to prepare for a News Corporation takeover. They moved quickly to discuss how to create a structure to protect the Journal's editorial independence as a unit of Murdoch's empire. Neither of them cared much, really, for the rest of the company. It was the Journal they needed to guard. If Murdoch was going to win the day, as looked likely, the precedents were disheartening.

  His Times and Sunday Times of London each had an independent board watching over the publications to ensure the owner didn't interfere. Both, packed with Murdoch loyalists, were jokes. Crovitz quipped that the members all seemed to be related since they shared the name "Lord." The board had never blocked anything, the men agreed.

  When Murdoch bought the Times of London in 1981, he promised new editor Harold Evans editorial independence. Evans memorialized Murdoch's behavior afterward in his book about his editorship, Good Times, Bad Times. When Evans confronted Murdoch about the guarantees in the editorial agreement, Murdoch shot back, "They're not worth the paper they're written on."

  Crovitz and Brauchli batted around other possible structures such as the one at the Economist, which was controlled by an employee trust and Reuters's "golden share," which protected the company from a sale. That protection, too, was rendered meaningless by Thomson Corp.'s just-announced agreement to purchase Reuters. The two men had their autonomy to defend, and they were united in purpose.

  The conference call began a few moments later. Rich Zannino had gathered some of his executives. Leslie Hill joined Brauchli in the paisley-covered room at the Four Seasons, and her two cousins—Chris Bancroft and Lisa Steele—joined the discussion from Texas and Vermont, respectively. Paul Gigot, the editorial page editor of the Journal, called in from Istanbul, where it was two in the morning.

  Chris Bancroft, still stung from what he saw as the betrayal and deception of the last call, led off the conversation, determined to take control. "We feel it is necessary we sit down and listen to Murdoch," he began. "The family needs to determine if there is any way to do business with this man." He articulated the question that was on everyone's mind: "How do you protect Dow Jones & Company if there is an owner other than the Bancroft family?"

  Crovitz, ever mindful of the Bancrofts' power over his future, then thanked the family for their stewardship. "I don't know of any news organization with the independence we have here. We start from an unusual, maybe unique, position," he said. "And we all appreciate the independence we've had for a very long time." Crovitz was on a roll now, speaking in his hushed, professorial tone that made some on the call bend closer to their phones to hear him. He went through some of the structures he and Brauchli had just outlined. "What would it take to preserve the independence? That's whe
re we should start," he said. The disembodied voices murmured their assent.

  At a lull in the conversation, Brauchli broke in. He brought up his great fear that Murdoch's control of the Journal, simply by association, could tarnish its identity. If Murdoch started something called WSJ Television and had Roger Ailes, the former Nixon speechwriter and spiritual father of Fox News, run it, it could be more damaging to the Journal's stature than any direct meddling in the paper's coverage, Brauchli thought. "The strongest protection I can imagine," he said, "is autonomy for the editors and some guarantee of job security. If we identify what it is that defines an editor's autonomy—from deciding how the brand should be used, to controlling content and story placement, to hiring—we can perhaps better protect the paper simply by ensuring editorial autonomy." Again, the assenting murmurs sounded, with Chris Bancroft agreeing emphatically. Lisa Steele, from her cozy Vermont quarters, chimed in: "It is critical that news and editorial be protected. We do not want to consider a deal with Rupert Murdoch if we can't construct something ironclad. We need to hear from you all who live and breathe it."

  Zannino, who had been listening, then told Chris, Lisa, Leslie, and Elefante that the editors and executives would get back to them with suggestions for how to protect the Journal. The family, after their announcement, had quickly agreed to meet Murdoch that coming Monday. Chris Bancroft, anticipating the meeting, wondered if they could deliver those suggestions by Sunday, which was three days from the call. "Our objective is to find out if there's a reason to change our minds" about the meeting, he said.

  Leslie, Lisa, and Chris hung up from the call. Leslie walked out of the room, leaving Brauchli alone. Zannino, ever focused on his role in this meandering discussion as well as his duty to his shareholders and his reputation as a CEO, took over. "Whether the family sells is really going to be a function of where they end up on the question of editorial integrity within News Corp.," he said. The difficulty now was that since the family had voiced a willingness to sell, the board was involved and obligated to sell to the highest bidder. It didn't matter to the shareholders if the highest bidder would ruin the company the day after the closing of the deal, just as long as they got their payout. It sounded cruel, but such was the code of Wall Street, and its adherents subscribed to it just as journalists prayed at the feet of objectivity.