Publish date:

A Fox in Dow Jones' Henhouse

The Bancroft family's opposition to a Murdoch deal sets the stage for a fight on Wall Street.
Author:

Updated from 2:52 p.m. EDT

The Bancroft family's opposition to Rupert Murdoch's attempted acquisition of

Dow Jones

(DJ)

sets the stage for an epic battle between Wall Street and the venerable publisher that has chronicled its ups and downs for more than a century.

Murdoch's global media empire,

News Corp.

(NWS) - Get News Corporation Class B Report

made an unsolicited bid for the publisher of

The Wall Street Journal

for $60 a share, Dow Jones confirmed Tuesday. The $5 billion offer amounts to a whopping premium of 65% over Dow Jones' closing price on Monday, and it's destined to win favor from shareholders on Wall Street who stand to reap a huge and unexpected profit.

But the controlling shareholders of Dow Jones, the Bancroft family, have said that family members holding a slight majority of the company's voting power plan to

block the deal. According to

CNBC

, which broke the news of the Murdoch proposal, the Dow Jones board is meeting Wednesday to discuss the bid.

The Bancrofts offered no explanation for the opposition, but some members of the family are reportedly opposed to selling their legacy to Murdoch, who has a reputation in the media industry for selling tabloid sensationalism as opposed to the deeply reported and measured journalism that has given the

Journal

its vaunted reputation.

With their stance, the Bancrofts are sure to raise hackles on Wall Street, since turning down Murdoch's offer risks squandering Tuesday's gains in the company's shares, which closed up $19.87, or 54.7%, to $56.20.

Recently, shares were down 40 cents, or 0.7%, to $55.80, signaling that while Wall Street's initial optimism about the deal is being tempered by the Bancroft's opposition, investors still believe that the family will ultimately cave and sell the company.

That view reflects the genius of what could turn out to be 70-year-old Murdoch's coup de grace in a long and illustrious career in media. His timing, for one, is impeccable. Dow Jones is in a time of transition, the Bancroft family is aging and splintering, and the outlook for the newspaper business on Wall Street has never been bleaker.

All in the Family

With their stance, the Bancrofts appear to be taking a similar position to that held by the Ochs-Sulzberger family trust at

New York Times

(NYT) - Get New York Times Company Class A Report

in

its own battle with Wall Street. Like Times, Dow Jones is controlled by a family trust whose ancestors built the company into a media empire. They maintain control over the company's voting rights through a dual-class share structure, which is designed to shield the editorial independence of its news operations from Wall Street.

While the

Journal's

editorial board is a leading voice for American conservatism, a slant that jibes with Murdoch's own politics, its news division has always been strictly independent from its opinion pages, and that distinction is a hallmark of the

Journal's

tradition in journalism.

For his part, Murdoch has made no pretense of editorial independence at his news operations, like Fox News and the

New York Post

. He has long been interested in buying the

Journal

, but the Bancrofts have resisted his efforts in order to protect their company's editorial independence.

"Let me say one thing about Rupert Murdoch," Mortimer Zuckerman, chairman and publisher of

The New York Daily News

, said to his own newspaper. "Anyone who thinks he isn't going to have anything to do with the editorial side of

the

Journal

is, shall we say, living in an imaginary world."

The Sulzbergers at Times have taken a similar approach as the Bancrofts in rebuffing the proposal put forth by Morgan Stanley Investments portfolio manager Hassan Elmasry, who owns about 6% of Times through his fund, to end its dual-class share structure. Such a move would open Times up to takeover attempts by investors who have reportedly expressed interest, like former

TheStreet Recommends

General Electric

(GE) - Get General Electric Company (GE) Report

CEO Jack Welch, who sought to buy Times' Boston properties, and former

AIG

(AIG) - Get American International Group, Inc. Report

CEO Hank Greenberg.

"We have no intention of opening any of our doors to the action that is tearing at the heart of some of the other great journalistic institutions of our country," said New York Times CEO Janet Robinson at a recent media conference in New York City.

Recently, about 42% of the company's Class A shareholders, the public investors who own the vast majority of its equity, voted to withhold support from the Times' four Class A directors. That marks an increase from the 30% that voted to withhold support last year, and it provided evidence that Elmasry's campaign for change is gaining traction.

New York Times chairman and publisher, Arthur Sulzberger Jr., held firm at the company's annual meeting.

"Only the trustees of the Ochs/Sulzberger family have the ability to change

the company's dual-class share structure, and we are unanimous in our commitment to retain it," he added.

The

Times

, known for its left-leaning commentary, has been pilloried on Wall Street for this position, since it appears to put editorial interests ahead of shareholders' interests. But with the Bancrofts taking a similar position, having supported the

Journal's

right-leaning editorial board over the years, critics may have to re-evaluate their position.

The Bancrofts' stance may be far less tenable than that of the Sulzbergers. After all, nobody has offered a 65% premium to buy the Gray Lady (although Murdoch's move may be an inspiration to other newspaper suitors).

"This is a knockout bid, and I think no other party will be able to match it," says Jack Liebau of Liebau Asset Management. "Most of the shareholders would probably eagerly accept this bid, but the Bancrofts have the final say here."

Obstacles for All Sides

It's unclear if the Bancrofts are uninterested in selling, or are just uninterested in selling to Murdoch. That raises the possibility that other interested parties could step into the fray. Bloomberg LP has signaled that it's not interested.

Washington Post

(WPO)

declined to comment for this story, as did New York Times and

Google

(GOOG) - Get Alphabet Inc. Class C Report

.

One name that has been circulated as an acquirer is General Electric, but Russell Wilkerson, a spokesman for GE, said his company has no interest in acquiring Dow Jones.

GE's cable news network,

CNBC

has a content-sharing partnership with Dow Jones, and Murdoch ownership of

The Journal

would be a boon for News Corp.'s soon-to-be-launched

CNBC

competitor, the Fox Business Channel.

But GE has an exclusive deal with

The Journal

through 2012 that only it can terminate, which means Murdoch may have to negotiate with the conglomerate if he wants to use a similar content arrangement at News Corp.

Meanwhile, if Murdoch succeeds, a News Corp. acquisition of Dow Jones would be certain to launch public controversy over the possibility of a highly conservative voice wielding such power at a time of such political turmoil.

Murdoch is a poster-boy for mass media consolidation -- a trend that has been decried by Democrats, who now control both houses of Congress and could come after News Corp. with all guns blazing over the deal. And, opposition to the deal is strong in the

Journal's

newsroom as well.

"Mr. 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," the Independent Association of Publishers' Employees, a union representing Dow Jones employees, said in a statement Tuesday. "Despite our differences of opinion with current management, we strongly encourage the Bancrofts to continue to stand up for the institution's independence, and to walk away from this offer."