Issues & Opinions

From tomorrow morning’s WSJ: “Dow Jones Board Takes Over Talks On Firm’s Future”

Notwithstanding the fact that the Bancroft family could squelch a deal with News Corp, if they were able still to muster a majority of their ownership minority to do so, the overall board is taking the correct approach here, it seems.

Dow Jones & Co.’s board, frustrated with the pace of the Bancroft family’s negotiations with News Corp., said it would take over talks on the future of the company. The move, coming after more than two weeks of little progress between the parties, increases the likelihood of a deal to enable Rupert Murdoch’s media giant to buy Dow Jones, the owner of The Wall Street Journal

Sure, the voting control of the Bancrofts (and, to a lesser extent, the Ottoways) can prevent a deal being done, or promote a deal that is less financially lucrative for the shareholders, but at some point, the slow pace of action becomes a problem for the full board. The Bancrofts have 25% of the board seats (4 of 16), and while the 4 directly elected class B directors are primarily responsible to the class B shareholders, their delays, however understandable in light of their responsibilities, can’t be allowed to stymie action by the full board.

And so, after what one might assume was a contentious discussion on the matter, the full board, of course including the Bancroft representatives, now has the helm:

Dow Jones Statement on Negotiations
June 20, 2007 5:06 p.m.
PRESS RELEASE: Dow Jones Issues Statement

NEW YORK, June 20, 2007 — Dow Jones & Company (NYSE:DJ) announced today that its Board of Directors and representatives of the Bancroft family have concluded that the best way to continue to evaluate the News Corporation proposal to acquire the Company would be for the Board of Directors to take the lead in addressing all aspects of the proposal and all other strategic alternatives, including remaining independent.

Accordingly, the Board of Directors, including representatives of the Bancroft family, will conduct further discussions with News Corporation relating to the proposal and will oversee the exploration of strategic alternatives. Representatives of the Bancroft family, which owns shares representing a majority of the Company’s voting power, reiterated that any transaction must include appropriate provisions with respect to journalistic and editorial independence and integrity.

Any acquisition will require the approval of the Board of Directors and shareholders owning a majority of the Company’s voting power. There can be no assurance that any transaction or other corporate action will result from the foregoing or that the Board of Directors or the members of the Bancroft family will support any specific proposal.

Source: Dow Jones via Prime Newswire

Or perhaps it wasn’t a contentious discussion at all? GE & Pearson have yet to make an offer, and may not ever do so. At least one other bidder has arrived on the scene, but the impact of that offer is less than clear:

But yesterday, another bidder, MySpace co-founder Brad Greenspan, sent a letter to the Dow Jones board seeking to pay $60 a share for a 25% noncontrolling stake in Dow Jones. Even if these factors don’t scuttle Mr. Murdoch’s plans, they could slow the process.

Slowing the process is the last thing the board would be likely to want – as the game goes on, speculation about outcomes puffs the stock, and stock that gets puffed can just as easily become unpuffed, with the board catching part of the grief for having allowed the process to spin out of control. Director liablity if the auction process collapses can’t be trivially ignored here.

Dow Jones’ stock closed today at $60.65, above Murdoch’s offer price, and while I won’t pretend to know why, it seems far more likely to have been due to an assumption of a GE/Pearson overbid than to Brad Greenspan’s offer of, essentially, an outside-funded stock buy back.

The outside purchase of a non-controlling 25% stake won’t reduce shares outstanding, and thus won’t increase EPS. It also won’t be a valid indication of the go-forward value of the company – it’s only worth $60 or more right now because that’s what Murdoch has offered and what others might offer. Greenspan’s offer does not much more than provide a 25% buffer for the Bancrofts’ voting bloc, and by the time it became fact, the voting will likely be over. From whom he proposes to purchase the stock is also a mystery, at present.

There’s another part of the story of Mr. Greenspan, laid out in the final paragraph of the continued-excellent WSJ coverage of the saga by Dennis Berman, Susan Pulliam, Sarah Ellison, et al:

Mr. Greenspan, who sent the letter to the Dow Jones board yesterday, is the former chairman and chief executive of Intermix Media Inc., the parent company of MySpace when it was created. After he left the company but still held a significant stake in it, MySpace was sold to News Corp. Mr. Greenspan sued, claiming the $580 million deal defrauded shareholders by undervaluing the asset. But in October 2006, a Los Angeles court rejected the legal challenge.

Grudge investing, if that’s what Greenspan’s offer happened to be, is not indicative of true market value. I can’t imagine the offer being taken seriously by the board as an alternative to Murdoch’s. Maybe he’s planning a public tender for the shares he desires? If so, I can’t imagine the market taking him up on it either, unless Murdoch takes his offer off the table. At which point, of course, Greenspan would be the happy buyer of stock overvalued by 40% or more.

Seen at the Dealbreaker: The Murdoch Meter.

My view of likely outcome still happens to agree with theirs.