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Hey Bancrofts, Have I Got an Idea for You!

June 3rd, 2007 by David Kronemyer · No Comments

This weekend’s coverage of Rupert Murdoch’s quest for the Wall Street Journal took a remarkable turn in tone. Some inbred New England clan called The Bancroft Family controls Dow Jones, mainly because the company has a bizarrely-antiquated two-tier stock structure, and they own a majority of the tier that votes.

Initially, they “reacted coolly” to Mr. Murdoch’s tender overtures, Siklos, R. & Sorkin, A., “Rupert Murdoch Offers $5 Billion Bid for Dow Jones,” New York Times (May 2, 2007). Then, however, they decided the twin virtues of parsimony and patriotism, by which they mean the old-media status quo, should carry the day. The insidious drum-beats of negative coverage were heard up and down the River Charles.

And, before you could say “gin martini” (or, perhaps, “polo pony), Mr. Murdoch was descried as a tyrant and a despot, seeking to topple one of the pillars of American Journalism. The Bancrofts are alleged to believe they are guardians of a public trust. They are prideful of the company’s culture and history of journalistic independence. There was no room in this equation for an upstart like Mr. Murdoch, Peers, M. & Patrick, A., “Murdoch’s Editors Know His Voice,” Wall St. J. (May 3, 2007).

Thus we heard, Mr. Murdoch would start “meddling” with the paper’s editorial content, Murphy, K., “A London read on Murdoch’s plan,” Los Angeles Times (May 7, 2007). He would endanger the Wall Street Journal’s vaunted “editorial independence,” whatever that means, Karnitschnig, M. & Warren, S., “Key Dow Jones Holder Cites Opposition To Murdoch Bid,” Wall St. J. (May 24, 2007). Other shareholders got more ad hominem, questioning both Mr. Murdoch’s journalistic credentials, and his business ethics, Pérez-Peña, R., “Ottaways Deplore Bid by Murdoch,” New York Times (May 7, 2007). Former Dow Jones executives were exhumed to state their opposition, Karnitschnig, M. & Ellison, S., “Ex-Dow Jones Executives Oppose Murdoch’s Bid,” Wall St. J. (May 7, 2007); Ellison, S., “Dow Jones Ex-Chief Praises Family’s Stance,” Wall St. J. (May 8, 2007).

Incidentally, the Wall Street Journal’s coverage of Mr. Murdoch’s initiative to buy Dow Jones, has been uniformly excellent. One of my favorite things is journalists covering themselves, and other journalists, and fortunately the Wall Street Journal reporters have stepped up to the plate, and done a good job, despite myriad conflicts. The only slip is, it appears they (unethically) may have embargoed initial news of Mr. Murdoch’s approach, Sorkin, A. & Pérez-Peña, R., “Why Wall St. Journal Editors Held News of Murdoch Bid,” New York Times (May 8, 2007) – a fact later admitted to and analyzed by the Journal itself, Ellison, S. & Kang, S., “Murdoch Approached Dow Jones March 29,” Wall St. J. (May 10, 2007).

That being so, in a story not covered by the Wall Street Journal, its employees were urged to “stand firm” and support the Bancrofts, Mulligan, T., “Dow Jones staff urged to show support for family,” Los Angeles Times (May 4, 2007). I can just imagine the e-mails flying: “Should we spin this the way the Bancrofts want us to? But what if they sell? We don’t want to piss off Mr. Murdoch!”

And, with everything else in play, Mr. Murdoch’s offer was very hard to ignore. $60 a share was 67% above the stock’s recent price. Newspaper companies are under pressure from the Internet and other new media, and are losing readers and advertisers almost on a daily basis, Berman, D. & Ellison, S., “Murdoch’s Surprise Bid: $5 Billion for Dow Jones,” Wall St. J. (May 2, 2007); Berman, D. & Ellison, S., “Key to Company’s Fate Is the Bancroft Family; Firm ‘No’ or a ‘Maybe’?,” Wall St. J. (May 2, 2007). Furthermore, for all of its vaunted and highly-touted prestige, the embarrassing fact of the matter is, the Journal’s margins are slim, Pérez-Peña, R., “At Journal, Slim Margins Open Door to Murdoch,” New York Times (May 14, 2007).

The company’s directors also are in a bit of a spot. While the Bancrofts may have voting control, there are these pesky voles running around known as minority shareholders, many of whom are newcomers to the firm, having just bought their shares from bedraggled long-time shareholders, who could not believe their sudden good fortune, when the company’s stock price almost doubled, overnight. Directors owe duties to them, too — a fact not lost on the Bancrofts or their advisors, Sorkin, A., “First the Bid, Now the Jockeying,” New York Times (May 3, 2007); Rainey, J. & Mulligan, T., “Wiggle room in Murdoch offer?,” Los Angeles Times (May 3, 2007).

Then there are the Bancrofts themselves. The genealogy and ancestry comprising their various factions are complex, Ellison, S. & Berman, D., “At Dow Jones, Focus Is on the Bancroft Family,” Wall St. J. (May 3, 2007). Like most multi-generational organizations, the Bancrofts are not particularly unified, Pulliam, S., Berman, D., Karnitschnig, M. & Ellison, S., “Dynasty’s Dilemma – For Bancrofts, Dow Jones Offer Poses Challenge. Murdoch Bid Tests Family’s Cohesion; Sell ‘Grandpa’s Paper’?,” Wall. St. J. (May 12, 2007). What this means is, for all of the palaver and rhetoric about “public trust” and “journalistic independence,” the kids (and their kids) couldn’t care less, especially when serious money hits the table, as it has.

Properly understood, the anti-Murdoch arguments are naïve. After paying $5 billion for something, Mr. Murdoch is the last person in the world who would want to depreciate the value of the investment. He is uniquely positioned to recognize the possibility and potential of an iconic institution like the Wall Street Journal in today’s new digital era, Kang, S., “Murdoch’s Bid Underscores His Attraction to Business News in the Digital Age,” Wall St. J. (May 2, 2007). Furthermore, he is looking to the luster and credibility of the Wall Street Journal to burnish that of his own (forthcoming) Fox business news channel, Pulliam, S., Zuckerman, G. & Richardson, K., “Dow Jones: the Premium Question,” Wall St. J. (May 2, 2007). Given these factors, it hardly would make sense for him to acquire a “trophy” property like the Wall Street Journal, with the intention of deploying it towards such ends, but then intervene to frustrate that very objective. Indeed, quite to the contrary, it appears Mr. Murdoch’s intentions are to continue to resource the paper, even in a climate of adverse media trends, Sorkin, A., “What to Do When Rupert Calls?,” New York Times (May 6, 2007).

Despite the nasty public relations offensive, which I’m sure he shrugged off like water on a duck’s back, Mr. Murdoch persistently reached out to the Bancrofts, to try and meet, Karnitschnig, M., “Bancrofts Stay Cool to Murdoch. Family Declines to Respond To Latest Meeting Request; Deal Pitch Gets New Twist,” Wall St. J. (May 15, 2007). Even so, the pace in Bancroft-land evidently started to pick up, as they started meeting internally, most likely with a view towards reassessing their position, Karnitschnig, M., “Dow Jones’s Bancrofts Set Private Meeting Over Offer,” Wall St. J. (May 23, 2007).

Then, finally, today’s news: the Bancrofts in fact will meet with Murdoch, and consider selling the company. While there is the usual boring nonsense about guarantees of editorial independence and journalistic integrity, the real issue, of course, is if he will pay more money, Sorkin, A. & Pérez-Peña, R., “Dow Jones Says It Will Consider Options for Sale,” New York Times (Jun. 1, 2007); Pérez-Peña, R., “How the Bancrofts Decided to Talk With Murdoch,” New York Times (Jun. 2, 2007).

Oh, and what’s my idea for how to resolve the dilemma? Simple! Let the elder Bancrofts, who want to retain control of the firm, indemnify the younger Bancrofts, who want to sell – for any difference between $60/share, and the price to which Dow Jones stock subsequently will collapse, after Mr. Murdoch heads off to greener pastures, to dispense his largesse and gravitas upon more willing recipients. The senior Bancrofts’ unwillingness to enter into such an arrangement, if proposed, simply will reveal the bankruptcy of their emphasis on “journalistic integrity” – what economists call a “moral hazard” problem. In my view, the whole lot of them should be thanking their lucky stars that a media innovator like Mr. Murdoch came knocking at their door.