Yet we have this consolation with us, that the harder the conflict, the more glorious the triumph.
—Tom Paine, The American Crisis
The board of directors of the corporation, when evaluating any actions or transactions described in paragraph (a) of Article Seventh of this certificate of incorporation, shall give due consideration to all relevant factors, including without limitation the effect of such action or transaction upon the independence and integrity of the corporation’s publications and services and the social and economic effects of such action or transaction upon the corporation’s stockholders, employees, subscribers, readers, advertisers, customers, suppliers and other constituencies, and on the communities in which the corporation and its subsidiaries operate or are located.
—Restated Certificate of Incorporation of Dow Jones & Company, Inc.
Filed with the State of Delaware, Nov. 23, 1949 (Emphasis: The Audit)
As we approach Independence Day, I’d like to remind Audit Readers that, despite all appearances to the contrary, a sale of The Wall Street Journal’s parent to Rupert Murdoch’s News Corp. does not have to happen. (And it is Rupert Murdoch’s company. He controls a third of the shares, holds the title of chairman and CEO and is surrounded by a board of insiders, family members, conflicted persons, mediocrities, and the former president of Spain.)
Dow Jones independent directors, who took over talks with News Corp. two weeks ago, have reached a key accord designed to protect the editorial integrity of the Journal, Dow Jones’s main asset, the last main hurdle before getting to “yes.”
No one thinks that’s going to work.
So a reality check:
First, directors have broad discretion to do what’s in the best interest of the company, as they see it, and DJ lawyers know it.
We read that some DJ directors are, according to the Journal, concerned about “possible liability” from shareholders if they fail to take a lucrative offer.
After M. Peter McPherson, Dow Jones’s nonexecutive chairman, delivered a committee progress report yesterday to the full board, several directors raised questions about what would happen if Mr. Murdoch withdrew his offer, according to a person familiar with the matter. These directors were concerned about their possible liability to shareholders in the event the deal fell through, this person said.
“What happens if he takes his ball and goes home? What does that mean to director liability? This is our reputation and credibility,” this person said.
This is not exactly Declaration of Independence material here. Instead of “our Lives, our Fortunes and our Sacred Honor,” we get, “What does that mean to director liability?” I wonder what the signers would think of our leaders today?
Audit to Person Familiar: Get a hold of yourself, man.
The chance of directors being personally liable—if that’s what this summer soldier means—if they make a reasonable effort to do the right thing is basically nil. Besides, directors are indemnified personally for legal expenses by both the corporation and insurers, who receive expensive premiums just for this purpose.
Second, the certificate of incorporation quoted above is a live document. Whether it has much legal basis under Delaware law, I don’t know. But it’s fair warning to any investor who buys a DJ share: this is a company with a broad definition of the word value.
Third, don’t worry about the firefighters and schoolteachers who will lose the value of News Corp.’s $60 offer. People who wanted it sold out weeks ago. The people really on the hook are arbitrageurs and other speculators who bought in the mid-$50 range and are trying to get the last few dollars when the deal closes. Them and The Audit, who clings to his 344 shares for no apparent reason. I stand it to lose $6,000 if this offer goes away, and if you don’t think that’s a lot of money over here at Audit HQ, you have a lot to learn about Columbia pay scales. If can take the hit, the Bancrofts can. The pain would be more than offset by the pleasure of seeing hedge funds lose with me. We’ll all toast the spectacle up at Faculty House. Pimm’s is on me. I know a guy over there.
Fourth, I will remind Audit Readers that the Bancrofts, unlike the directors, have no obligation to fellow shareholders—zero. Those shares are like their house. They can do what they want with them, including not sell them to News Corp., which would end the deal, and we can all go back to whatever we were doing before all this.
Fifth, the shares will not crash to single-digits, as some people fear, but more likely, I think, will continue to enjoy a buyout premium, as the market now knows that 1. that someone thinks the shares are worth $60 and was willing to write the check; and 2. the Bancrofts might sell after all, to the right party.
Sixth, if Murdoch can get to $60, someone else can, too, and make DJ a better investment, over the long term, that the News Corp. alternative would be.
So, today, let’s recall Tom Paine:
The summer soldier and the sunshine patriot will, in this crisis, shrink from the service of their country; but he that stands by it now, deserves the love and thanks of man and woman.
Dean Starkman Dean Starkman runs The Audit, CJR's business section, and is the author of The Watchdog That Didn't Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014). Follow Dean on Twitter: @deanstarkman.