Murdoch purchase of Dow Jones not a lock


NEW YORK (AP) – Just a few weeks ago, it seemed inevitable to many on Wall Street and in the media industry that Rupert Murdoch would prevail in his campaign to add Dow Jones & Co., publisher of The Wall Street Journal, to the media empire he has spent a lifetime building.

But with the sudden departure of a director in protest of the deal with News Corp. and more signs of dissent in the family that controls Dow Jones, that outcome seems less assured now as the monthslong process comes to a head.

The endgame for Dow Jones begins on Monday, when the controlling shareholders of the company, the Bancroft family, will receive a briefing on the outline of a $5 billion deal that Dow Jones’ board signed off on Tuesday evening. They are expected to decide the fate of the company within a few days after that.

Predicting which way the Bancrofts will lean has become increasingly difficult – so much so that Murdoch himself told The Associated Press last week at a media conference in Sun Valley, Idaho that the Bancrofts “keep changing their minds.”

The family has been concerned about accounts of corporate interference at other Murdoch-owned newspapers, and demanded assurances that the newsroom of the Journal, which has been under the family’s control since 1902, would be free of corporate meddling. Murdoch says those concerns are unfounded.

Anti-Murdoch sentiment among Bancroft family members is sure to be fanned by the abrupt departure late Thursday of Dieter von Holtzbrinck as a director of Dow Jones.

In a tersely worded resignation letter, von Holtzbrinck, whose family controls a prominent publishing company in Germany, including the leading business daily there, said that while Murdoch’s offer is “very generous in financial terms,” von Holtzbrinck is “very worried” that Dow Jones’ journalism will suffer under Murdoch.

Even though Dow Jones’ board signed off on Murdoch’s proposal without von Holtzbrinck – he was reported to have abstained from the vote – there are other signs of trouble for Murdoch’s bid.

At that same board meeting Tuesday night, Leslie Hill, a director who is also a Bancroft family member, also reportedly abstained, and fellow director and relative Christopher Bancroft left the meeting early.

All of which raises the question of what would happen if the deal falls apart. The Bancrofts could either kill the deal themselves by promising to vote against it or show such tepid support that News Corp. could walk away rather than risk a nasty shareholder fight later.

The first consequence of a failed deal would surely be a sharp decline in the shares of Dow Jones, most likely to around the mid-$30s level they had been trading at prior to Murdoch’s $60-per-share offer becoming public in early May.

Investors are increasingly accounting for the risk of the deal failing, sending Dow Jones shares steadily below Murdoch’s offering price since late June.

After cresting at $61.76 on June 5, Dow Jones shares have fallen more than 10 percent, losing 40 cents to $55 Friday amid a broader downturn in the market.

A collapse in Dow Jones’ stock in turn would leave a lot of shareholders unhappy, which could lead to the possibility of shareholder lawsuits. However, given that investors already knew full well that the company has controlling shareholders, it’s not clear that there’s much they can do to legally challenge a decision not to sell the company.

“I’m sure the board is following their fiduciary duty by considering the offer,” said Espen Eckbo, professor at the Tuck School of Business at Dartmouth College in Hanover, N.H. “But ultimately when you have a controlling shareholder, they will decide yes or no.”

The Bancrofts own 25 percent of the company but control 64 percent of the shareholder vote through supervoting shares.

“You cannot by law take away the control of votes,” said Eckbo, who is also the founding director of the Center for Corporate Governance at the Tuck school. “They own the votes … and that’s something you need to know when you buy the shares.”

A union representing Journal reporters and some Bancroft family members have sought to drum up alternatives to Murdoch’s offer, but so far none have yet to gain serious traction. In late June Pearson PLC abandoned exploratory talks to combine its Financial Times newspaper with Dow Jones and General Electric Co.’s CNBC.

Internet entrepreneur Brad Greenspan also met with Dow Jones negotiators along with California supermarket mogul Ron Burkle, but the board wound up endorsing Murdoch’s plan. Late Friday, Greenspan put out a press release detailing a proposal that would involve, in part, lending Bancroft family members up to $600 million to buy out members who wanted to sell out. Dow Jones had no comment, and a Bancroft family spokesman declined comment.

Without Murdoch’s considerable financial resources and global reach, Dow Jones would have to go it alone as it tries to stem the deep losses of print advertising confronted by newspaper publishers everywhere while simultaneously trying to build up its electronic businesses such as, and its Factiva online news database.

Dow Jones Newswires also faces a threat by the combination of two major competitors in real-time financial news, Thomson Corp. and Reuters Group PLC. Initial word about that deal leaked out just days after the Bancrofts initially rebuffed Murdoch in early May.

Murdoch has promised to invest in the Journal’s operations, particularly its online and overseas brands as well as its Washington coverage, with the goal of building an even bigger brand for the company and also going up against The New York Times for national readers at home as well as overseas business readers of the Financial Times, owned by Pearson PLC of the United Kingdom.

Like other newspapers, Dow Jones is trying to move beyond the printed page and bring its brand name to other media such as TV, online video and other forms of Web-based news. Part of Murdoch’s plan for Dow Jones involves tapping its resources to help build a business-themed cable news channel to compete with General Electric Co.’s highly profitable CNBC.

Murdoch has already proved his mettle in going up against established media players, creating the Fox News Channel which eventually surpassed CNN, owned by Time Warner Inc., in the general news category.

But by announcing last week a firm start date for the Fox Business Network on Oct. 15, News Corp. is indicating that it is moving ahead with its own plans – with or without Dow Jones.