The board of directors of Dow Jones has decided to take no action on the $5 billion proposal from News Corp. "Approval of a merger under Delaware law requires approval of a majority of the outstanding voting power of the corporation. Accordingly, the Dow Jones Board of Directors has determined to take no action with respect to the proposal," the company said.
A representative of the Bancroft family informed the board on Wednesday that they would vote shares constituting about 52% of voting power against the News Corp. bid, Dow Jones said.
This throws a spanner into Rupert Murdoch's $60-a-share offer for Dow Jones, publisher of the Wall Street Journal.
Murdoch, arguably the most powerful media mogul on the planet, has long admired the Journal, and owning it would mark a capstone in the career of the 76-year-old Australian-born executive.
His proposal also dovetails nicely with News Corp.'s plans to launch a business-oriented cable news channel to rival CNBC, but the offer ran into trouble Tuesday when the Bancroft family said it would oppose the deal.
"They (The Bancroft family) control 64% of the voting shares and more than 50% of (the family's shares) will be voted against the deal or they will tell the board that they do not support a deal to sell the company at $60 a share." CNBC's David Faber said Wednesday.
No Sense of Why
"What we're not getting from the Bancrofts is any sense as to why," Faber said. "Is it a question of money? Is it a question of the buyer? Or is it simply (that the family is) not selling this company to anyone, anytime for anything?"
The $60-a-share offer is 17 times EBITA, an eye-popping number, Faber said. The Bancroft family hired advisors to review the deal, so the offer apparently wasn’t rejected out-of-hand, Faber said.
"Rupert Murdoch knew he had to put a big number out there to get (the Bancroft family’s) attention,” Faber said. "It’s hard to see … someone coming in above that price."
However, the story is far from over. Unlike the Grahams at The Washington Post or the Sulzbergers at The New York Times, families which control their respective publishing companies, the Bancrofts aren't involved in the day-to-day operations of the Journal or Dow Jones.
"News Corp. has made every effort to connect with the Bancroft family," Faber said. "They have not had a sit down with any members of the family. The Bancrofts have been operating through their trustee, Michael Elefante, who sits on the board of directors."
Other Bidders Possible
It's also possible that other bidders could emerge for the company, which has long been coveted by other media owners for the powerful voice the Journal has in the business world. The Bancrofts have been unwilling to sell in the past, but their moves to reduce their economic ownership in Dow Jones also signal their desire to have investments elsewhere.
Peter Kreisky, president of Kreisky Media Consultancy, said Dow Jones has "blaringly underleveraged assets" that could be turned around by someone like Murdoch, and that Dow Jones' current management has been "very risk-averse to leveraging their brand."
The offer values Dow Jones at $60 per share, a massive premium of 65% over Dow Jones' closing share price before the deal was announced. The shares shot up $19.87, or 54.7%, to close Tuesday at $56.20 in very heavy volume on the New York Stock Exchange after reaching as high as $58.47.
Murdoch's bid comes at a time of unprecedented deal activity among newspapers, which are struggling to reinvent themselves as readers and advertising dollars increasing move to the Internet.
In an interview on News Corp.'s Fox News Channel, Murdoch said the Journal would benefit greatly from being part of a larger media company and had great potential for increasing both its print circulation as well as its online presence worldwide.
The prospects of ownership by Murdoch faces significant opposition within Dow Jones. The union representing its employees, the Independent Association of Publishers' Employees, issued a statement Tuesday saying that Murdoch "has shown a willingness to crush quality and independence, and there is no reason to think he would handle Dow Jones or the Journal any differently."
Giving Bancrofts Control
Dow Jones raised the ire of shareholder advocates two years ago by making changes to its rules that would allow the Bancroft family to maintain voting control even if they liquidate part of their holdings. According to Dow Jones' most recent proxy statement, the family owns 24.7% of the economic interest in the company and controls 64.2% of the shareholder vote.
News Corp.'s main businesses are now in television and entertainment--including the Fox broadcast network and the Twentieth Century Fox movie studio--but Murdoch got his start in newspapers and still owns many of them in England and Australia, in addition to the New York Post.
Murdoch has long been know to have an interest in owning Dow Jones, although he said in a public interview in February that he had been "cooling" on the idea and doubted that the Bancroft family would sell. However, he also said then that the Journal had a "wonderful brand" and could be doing more to go up against The New York Times.
Murdoch is known as a tough competitor in the newspaper world and recently ramped up the circulation of the gossip-heavy New York Post with a 25-cent cover price. The Post, which has lost tens of millions of dollars a year, raised its price to 50 cents Monday.
Last month, Tribune Co. agreed to go private in an $8 billion deal led by real estate investor Sam Zell, and last year, McClatchy Co. acquired what was then the second-largest newspaper publisher in the country, Knight Ridder, following a shareholder revolt.
At the same time, the New York Times is facing investor unrest over its own sluggish financial performance. Last week, shareholders withheld 42% of their votes for directors, a public rebuke to the Sulzberger family, which controls the company.
In addition to The Wall Street Journal, Dow Jones also publishes Dow Jones Newswires, Barron's, several leading market indicators including the Dow Jones industrial average and a group of community newspapers.
News Corp. also owns the popular social networking site MySpace and satellite broadcasters in Europe and Asia.