War at the Wall Street Journal (20 page)

 

The
Journal
's newsroom was hoping otherwise. The day after the offer became public, a reporter rallied his colleagues to communicate directly with the Bancrofts.

Investigative tax reporter Jesse Drucker urged his fellow reporters and editors to appeal to the Bancroft directors—Lisa Steele, Leslie Hill, and Christopher Bancroft—who would be the main people through whom the family needed to communicate. Noting that the family was under "enormous pressure," he wrote in an e-mail to his colleagues, "A short letter addressed to each of the three—make a separate copy for each—urging them to stand firm can only help our cause."

Chris Bancroft responded (in a letter he printed out on his letterhead: "Chris Bancroft Operations") by saying how much he appreciated the reporters' commitment to Dow Jones. But he was cryptic in his response. "I want to reassure you that my commitment to our common value has not changed and I will do all I can to preserve this special environment that encourages your work," he wrote. Such a statement left all his options open.

Shortly after the company confirmed the offer on Tuesday, the union representing the company's employees released its own statement against the bid. "The staff, from top to bottom, opposes a Rupert Murdoch takeover of Dow Jones & Co.," it said, expressing concern that Mr. Murdoch would destroy the company's editorial independence and would cut jobs as part of the deal.

The paper's reporters were desperate to preserve the unusual culture of Dow Jones under Peter Kann and the Bancrofts. That sensibility, and of course Paul Steiger's, allowed the paper to ferret out stories that were off the beaten path and seemed arcane, until they became required reading. Ralph Nader, hardly a friend of the
Journal
's editorial page, once proclaimed that the
Journal
was "the most effective muckraking daily paper in the country ... the main reporter in our country of corporate crime."

The
Journal
also pursued the unexpected feature and ignored the pressure of the pack, especially for sensational stories that were tabloid fodder. For example, in 1993, the
Journal
famously didn't report on Lorena Bobbitt for a month and a half, even as the news blanketed the pages of other papers. Then the paper broke its silence with a long profile of the urologist who reattached John Bobbitt's penis. That was the one and only mention of the Bobbitts in the
Journal
that year. Such aversion to the popular story would end under Murdoch, the newsroom knew.

 

Leslie Hill couldn't believe what she was hearing. Richard F. Zannino, the man she had advocated to become the CEO of Dow Jones just a year and a half earlier, was giving up. Leslie had helped push the early ouster of CEO Peter Kann and appointment of Zannino as his replacement. Yet here Zannino was, less than two years later, making the case for selling to Murdoch. Standing in front of his hastily assembled board on May 2, 2007, the day after the offer became public, Zannino looked out on the directors and knew he had to deliver a straightforward message that wouldn't be misunderstood. He wanted them to know the advantages of a tie-up with News Corp., and he also wanted them to realize what they were getting into if they turned it down. All Leslie heard was a man interested in selling out to avoid the hard work he had promised he would do to improve the company her family controlled.

The directors and advisers around the long wooden table represented an overlapping web of conflicting interests. Zannino had teed up this offer with his numerous meetings with Murdoch. The independent directors, though wildly different in their personal attachments to the company, felt they had little choice but to speak in favor of the deal; anything else might get them sued by the company's common shareholders. The family members on the board were their own mass of confusion and conflict. Not one of them was immune to the sentimental pull of their family's history with the company, but they took wildly different stances on what was best for the company.

Zannino's reaction to this assemblage of delicate alliances was to retreat to the familiar bland language of "shareholder value." Yes, there was "the potential risk of loss of journalistic independence," he told the group, but on the other hand, the benefits of the deal, the firepower News Corp. could offer the cash-strapped Dow Jones, would give the company the ability to go "to the next level" in a number of different businesses. Furthermore, the premium Murdoch was offering—the amount above the existing price—was beyond Zannino's wildest imaginings. He would be delivering shareholders a better deal than they ever could have imagined under Peter Kann. This last comparison wasn't explicit, but it didn't need to be. Zannino was the anti-Kann.

The meeting was disastrous. Zannino appeared, to almost all who attended, to have given up. A CEO was to protest a bit more when faced with his imminent irrelevance. Instead, Zannino seemed to embrace his defeat at the hands of Murdoch and profess immediately that he and his management could not offer what Murdoch could.

Hill listened to the man who she had hoped would deliver her company and her family a bright future. He was ready to give up and sell out. She looked at her cousin Lisa Steele, whose eyes were tearing up at the dismal prospects for Dow Jones. "Just when we were making progress," she thought, outraged.

From that moment forward, Zannino's board mistrusted him. Some, like Harvey Golub and some of the other senior directors, thought that Zannino was green, too inexperienced and uncreative to handle the myriad pressures facing him. Others believed, as did Leslie Hill, that he wanted to sell the company out from under the family and walk away with a big check. Leslie Hill and Harvey Golub both told Peter McPherson, the new chairman, that Zannino seemed out of line and in favor of a deal with Murdoch. McPherson told Zannino that some on the board were worried and urged him to write board members a letter to clarify his neutral position. Lewis Campbell, the CEO of Textron who was in favor of the deal from the get-go, told him, "You did it exactly right, but that crowd doesn't know that." Zannino began to worry. Five days after the meeting, he wrote a letter to the directors to assure them that "my sole intention in making these comments was to summarize the pros and cons of selling or not selling Dow Jones." He was furiously backpedaling in an attempt to maintain credibility with his directors. The letter continued:

 

As CEO I'm totally committed to doing everything in my power to help Dow Jones's continued success as we go forward. Please know that this is the way I felt last Wednesday when the family confirmed its decision not to sell. And it's the way I feel today.

More importantly, it's the way we are running the company, as my management team is likewise committed, engaged and focused. I also want to say I appreciate the confidence of the Bancroft family in this great company.

I look forward to seeing you all at next week's regularly-scheduled meeting. Until then, please feel free to contact me with any comments, suggestions or questions.

Sincerely,

Rich

 

The letter only served to highlight the awkwardness of what had happened a few days before in the boardroom. When portions of the letter appeared in the
Journal
a month later, it fueled Zannino's innate defensiveness and spread what would become the pervasive mistrust in the boardroom.

The finger-pointing inside Dow Jones began almost immediately after Murdoch sent his offer. But amid all the blame was an epic clash between the network of bankers and lawyers incentivized to make a deal and a group dedicated to the values of the old journalistic establishment. Mike Elefante, an unsuspecting lawyer with no experience standing up to the force of Wall Street's deal machine, was stuck between these two worlds. One of the most unapologetic members of the old establishment was Jim Ottaway, who had sold his father's community newspaper chain to Dow Jones thirty-seven years earlier and who had a year before retired from Dow Jones's board. Ottaway came to visit Elefante on Friday, May 11, to commiserate about the unfortunate situation in which the Bancrofts found themselves. Ottaway disapproved of Murdoch. Days before, he had penned an impassioned plea to the Bancroft family not to sell to Murdoch. His family was a sizable shareholder in Dow Jones. They owned 2 percent of the company's shares, some of which were super-voting B shares, which granted them control over 7 percent of the company's voting power. But Ottaway had been born with money and wasn't overly concerned with making too much more of it. A friend of the Sulzbergers, with whom he socialized in the raggedly upscale rural enclave of New Paltz, New York, Ottaway carried himself like a rumpled professor. He had owned an organic farm upstate, donated money to his alma mater, the Phillips Exeter Academy, and wore slippers when receiving visitors at his woods-surrounded home. "You can't make it up," marveled one of Dow Jones's advisers. That day in the Hemenway & Barnes offices, he voiced his strong aversion to Murdoch and his hope that the family would resist the temptation to sell.

Elefante showed up the next day, a Saturday, at his office to clear his head and work on potential structures to keep Dow Jones independent. He and Mike Puzo, another major Bancroft trustee at the firm, realized quickly that of the three branches of the family, two contained agitators who wanted to sell. Jessie Cox's grandchildren—among them the Hill brothers, Tom, Mike, and Crawford; and Billy Cox III, known in the family as Billy "three sticks"—were likely sellers. Then there was Elisabeth Goth Chelberg, who had long before given up her public agitating but still harbored concerns about Dow Jones. Elisabeth's uncle Hugh Bancroft III, the late Bettina Bancroft's half brother, seemed ready for a sale.

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.
"