Investor's Business Daily, May 25th, 2007
Ancient Chinese military strategist Sun Tzu wrote that exercising patience often leads to victory in war.
Global media baron and News Corp. NWS founder Rupert Murdoch believes this applies to winning takeover battles as well.
At last report, Murdoch was bogged down in a multibillion-dollar bid to take over Dow Jones DJ, the owner of the Wall Street Journal.
The Bancroft family, which owns Dow Jones, has given Murdoch the cold shoulder despite his generous $5 billion offer to acquire the company.
They control Dow Jones through majority voting rights by inheritance. Murdoch's offer of $60 a share for Dow Jones, a 67% premium above its market price at the time, turned a lot of heads but hasn't gotten enough nods. The Bancrofts have said 52% of their 64% control of voting shares say no.
One Bancroft family member spoke publicly on the matter for the first time, as reported in the Wall Street Journal on May 24. Christopher Bancroft said selling the paper to Murdoch's News Corp. would endanger the paper's independence.
Bancroft Family Rift?
But the article also hints at possible rifts inside the family. An unnamed family member was quoted as saying the offer "forced people to look at reality."
However Murdoch's gambit turns out, analysts say it offers an epic case study in how to finesse complex human relations against the backdrop of intricate share-ownership structures and larger forces impacting the newspaper industry.
Murdoch's bid will also be watched because it's a battle between two powerful newspaper families, rather than a struggle between mostly faceless boards or private equity firms.
The fight is also a supreme test for the Australian-born media mogul. Murdoch, 76, has worked on scores of large and complex takeovers. He's known when to attack, retreat or sweeten deals and how to finesse powerful politicians to get what he wants. Deals can get bloody, but this time it's about bloodlines -- and he seems stymied.
Some say Murdoch eventually will tire of the contest and walk away without grabbing Dow Jones. Others say he will lay siege until he realizes his desire.
Right now, there's seemingly little Murdoch can do except dangle lots of cash before the Bancroft family and convince them that the Wall Street Journal won't be running tabloid style photos of sexy CEO secretaries.
Murdoch's Crown Jewel
Owning the Journal has been a long-time aspiration for Murdoch. His News Corp. owns 170 newspapers. His pinnacle properties include the 20th Century Fox film and TV operations and the Times of London -- all from acquisitions. If he pulls this one off, Murdoch could rightly claim his crown as the greatest media king of all time.
"I wouldn't bet against him," said Joshua Schwartz, the founder of East Wind Advisors, an investment banker focused on media and entertainment.
But some people are. Shares of Dow Jones, after hitting a high of 57.84 on the day Murdoch's offer was reported -- up 60% from the prior day -- dipped to 50.52 last Tuesday on media reports saying Murdoch might walk away.
On May 21, analyst Richard Greenfield of Pali Research told clients he expects the company to drop its offer within "the next couple of weeks."
Schwartz thinks that's unlikely.
"I'd be shocked if Murdoch walked away if the Bancrofts won't bite at his $60 offer," he said. "I believe based on Murdoch's track record that he knows this would be a long process and I think it will unfold over a long period of time."
For now Murdoch seems to be doing all he can do to gently cajole the Bancrofts.
His style is almost Victorian and harks back to the newspaper wars of the 19th Century. In a letter to the family on May 11, Murdoch wrote: "I would like to express my regret if you have been placed in an uncomfortable position by the events of the past week."
And he acknowledged that some mean things have been said about him. "Much has been written about me, my family and our company, some flattering, some not; some accurate, most not."
Later, tugging on family ties, he continued: "As a father myself, nothing makes me more proud than to see that my own children have inherited the passion that my father nurtured in me." He then outlines his plans "to continue to promote journalistic integrity, at Dow Jones and in the world."
Meanwhile, the thousands of other shareholders who no doubt would take the money and run are on the outside looking in. The Bancrofts and others who invested prior to 1986, owning class B shares, have 10 votes per share. That's how the Bancrofts control 64% of Dow Jones despite owning only 24.7% of total shares outstanding. Jim Ottaway Jr., whose family own 6.2% of Dow Jones Class B shares, also says they oppose the offer.
It's a slam dunk the Class A owners would sell. Shares of Dow Jones peaked in 2000 at $77 and were on a downward slide until Murdoch stepped in.
Company takeovers happen all the time on Wall Street with board members and high-level executives heavily involved on both sides. But the bid for Dow Jones is different, pitting essentially one man -- Murdoch -- against several generations whose ownership in the company dates back to 1902.
"It's like (the script for this deal) was written in Hollywood," Schwartz said. "A guy associated with tabloid journalism going for one of the most pristine publications in the world and a very blue blood family which wasn't a household name for decades who are now attracting all this light."
Focus On Voting Rights
The deal is also throwing a spotlight on dual-class voting rules.
"This deal focuses on an absolutely fundamental question as to the legitimacy and effectiveness of dual class voting structure," said Schwartz. "We have a real savvy deal maker -- maybe the most gifted deal maker of our time -- going against a structure that conventional wisdom says can't be challenged."
Dual voting structures are not uncommon, they are generally frowned upon. It's one of several strategies companies use to avoid unwanted suitors.
The New York Times NYT and the Washington Post WPO both have dual class structures and like Dow Jones the majority of voting shares reside with families. The Sulzberger family controls the Times and the Grahams control the Post. But unlike the Bancrofts, the Sulzberger and the Graham families are actively involved in running their companies. Not so with the Bancrofts.
Less important but still relevant are Wall Street Journal employees, many of whom dislike the idea of Murdoch in control.
Others say the fear's inflated.
"I'm not so sure if I was at the Journal that I'd be worried about him buying it," said Alan Mutter, former city editor of Chicago Sun Times who has since been involved in several Silicon Valley startups. "It's too valuable an asset for him to pervert it or to dismantle it."
