If Dow Jones & Co.’s board agrees to a sale to Rupert Murdoch’s News Corp., as seems likely, the transaction would have to be approved by DJ shareholders, principally by holders of so-called Class B shares who control 62% of the votes. Under DJ corporate rules designed to protect against unwanted takeovers, the Bancrofts, descendants of the family that bought the company in 1902, and a few others hold special shares with 10 votes each and, in effect, control the company’s fate.
One of the non-Bancroft Class B shareholders is James Ottaway Jr., whose father sold the Ottaway family’s chain of local papers to Dow Jones in 1970. Jim Ottaway Jr. ran the largely profitable Ottaway unit within Dow Jones, and held various other posts until 2003, and served on the board of directors until last year. He and his son, Jay, have issued public statements urging the Bancrofts to reject the News Corp. offer, with Jay Ottaway saying: “It is clear that any promise of editorial independence will not be honored.”
(The Audit discloses: Ottaway co-chairs a committee that seeks funding
for CJR and for the American Journalism Review.)
The Audit: Whatâs the problem with Rupert Murdochâs News Corp. acquiring Dow Jones?
Jim Ottaway: To me, the first biggest issue is more media concentration in the hands the people who use their media power for personal, political, and business interests, as Murdoch does so blatantly with the New York Post, FOX News network, Star TV in China, Phoenix TV in China. He has the largest total broadcast audience in China, where theyâre getting no criticism because of his deal with the devil there. On Monday (June 25), the New York Times had a long piece on how Murdoch manipulates American politicians and FCC official to get the TV regulatory approval to keep all his television stations and not have to sell them. Then on Tuesday, it had a really good investigative piece on how he does the same in China. And I must say that these two articles made my statement on May 6th seem polite. I was horrified about the stuff I didnât know about. Thereâs no moral compass.
TA: Arenât business owners/proprietors allowed to use their assets as they see fit? Isnât that all he does?
JO: Apparently, that is a British/Australian journalistic tradition. The American tradition, which I think is a higher standard, produces a higher-quality of journalism. This wasnât (always the case) from the founding of the country when we had a highly partisan press run by political parties and individuals. But since the Second World War, the principle has been that, in your news columns, you report accurately, fairly, as objectively as you can. And on your editorial pages, you can state your personal, political and business interests if you want. Generally, American journalism has expected owners to act with a sense of public service in the way they run their newspapers and to consider a newspaperâŠa public trust, and not just a personal piggy bank.
TA: Is that something that even has a place in 21st century American capitalism, not using assets for their highest commercial value?
JO: This is capitalism gone crazy. A more fundamental (element of) capitalism in a free-market economy is that you base reporting on accurate information on which investors can make investment decisions and voters can make political decisions. What weâre in danger of losing is fact-based journalism that serves as a basis for public debate. I fear for the country if we do not have unbiased news sources available to every citizen so that they can hear all sides of major public issues and make intelligent decisions. Information must be based on some agreed-upon factual starting point. Otherwise, everything is propaganda and biased information, and nobody knows what the truth is.
TA: The idea of an unbiased news source is laughed off these days. We have to ask if unbiased or objective reporting is not itself an anachronism.
JO: Philosophically, you can argue that itâs an impossibility. But in practice and in a modern democracy and in an information society, where success in business, investments, and politics eventually depends on some common understanding of realityâwhat is real, what actually happened or didnât happen, or was said or not said âyou canât run a business, you canât run an economy, you canât run a nation if it doesnât have some discourse and public debate based on some commonly accepted facts. I think that this is whatâs the danger. Itâs what defeated the Roman Empire. You can find all kind of historical parallels of what happens when a society has reduced all news to propaganda. You canât a run republican democracy that way.
TA: Are Murdoch and News Corp. part of a broader trend in the American media or is News Corp. uniquely problematic, in your view?
JO: I think itâs the worst case of debased journalismâŠ
TA: Murdoch, if he were here, wouldnât he say youâre arguing against capitalism?
JO: NoâŠI think I actually said in my statement that heâs free to run his newspapers anyway he wants. Iâm just arguing that as a shareholder of Dow Jones, I donât want him running Dow Jones’s publications in that fashion.
TA: Sure, but the market says News Corp. is worth $70 billion, and Dow Jones is worth $3 billion. End of discussion?
JO: End of discussion if the shareholders of the $3 billion asset are willing to sell out just because they can get a higher price. If they have no commitment to honest and accurate journalism, then the dollar rules. Iâm arguing that thereâs a moral issue here. Rupert MurdochâŠI admire his business skills, but I despise his journalistic practices, and even if I admire him, Iâm concerned, and I think the Bancroft family should be concerned, about what kind of a home News Corp. makes for Dow Jones long-term. If we sell the company to Rupert Murdoch at age 76, this is not a long-term strategy. And, not only do we not know who the successor controlling shareholder will be at News Corp., we don’t know who would be the next chairman and chief executive. So I donât see selling to News Corp. as finding a very good home for Dow Jones.
I worked for the company for thirty-three years. I worry about its future and I worry about its people. âŠThis business of human assets is a very important thing because Murdochâs theory seems to be, “We can replace you.” You donât keep great writers that way.
TA: To what extent do you think the Bancrofts, the Dow Jones board and previous management under Peter Kann are responsible for the companyâs current predicament?
JO: I think itâs fair to say that Dow Jones management made a big mistake in not bidding high when the predecessor of CNBC (1) was up for sale. We should have gone for that no matter what it cost. We offered $115 million. (The difference from the winning General Electric bid) was peanuts. There was no vision or courage to go for a really important diversification. Then there was vision and courageâbut not the competenceâto make the Telerate (2) deal work. However, we did a lot of other things right and great.
TA: The dividend was always considered to be extremely high for a company of Dow Jonesâs size. What do you think?
JO: It was a high percentage of payout over the years. It was true, though, that in 2000 when the earnings went to $3.20 dollars a share, the dividend didnât move. Itâs been a dollar a share. Itâs not as if theyâve been cranking it up to get every last dollar out of the company. Itâs very high now because theyâre just barely making it (financially). But in the years when the percentage was high, the cash flow was strong, and we had the money for everything we needed. There were very few capital things we didnât do because we were told we had to pay the dividend.
âŠThe Bancroft family, however, was afraid of major debt. My father and I built the Ottaway newspapers on debt. We might have done things the company should have done earlier on if the company didnât have such an allergy to debt. The (Bancroftsâ) theory was interesting; it was a matter of principle: âWe are a business-news company. The WSJ is reporting on banks and banking; we donât want to be beholden to any banks because our reporters are covering [them].â They didnât want to buy any government-regulated company like a radio station because they didnât want anything regulated by the government.
TA: Knowing the Bancrofts, what do you think theyâre going to do?
JO: I think that even the good-hearted Bancrofts who would like to do the right thing are concerned about the position of DJ as a smaller company competing with larger and larger media giants. I know they were specifically scared by the Thompson Corp. deal for Reuters when both of (Thomson and Reuters) were distribution agencies for the Dow Jones news service. Thatâs an economic hit that they were concerned about. The timing of that couldnât have been worse. It was two days after the Murdoch offer was announced, and I know that scared them. So some of them are feeling a fiduciary responsibility to their children and grandchildren to take the best price. Thatâs a concern. And I guess there’s another concern: how the company would do going forward on its own.
TA: Youâre a âno?â
JO: Definitely. I couldnât live with the shame of having sold Dow Jones to Murdoch.
TA: How many others are there among Class B holders?
JO: I really donât know. I donât know how the Bancrofts are going to vote. They can have three main families who sometimes disagree. One branch of that family whose lawyers are in Denver definitely said that they want to sell. (3)
TA: Who are they?
JO: Theyâre from the Bancroft family side. But itâs not a unified voice even there. Christopher Bancroft, whoâs a trustee and a director of Dow Jones, is not happy about selling to Murdoch; I canât tell you how heâs going to vote but I know he doesnât like the idea. Heâs the one who said, âHey, I didnât know weâre putting the company up for sale.â The other two families have differences among the senior members and between the senior and younger members… Itâs like a three-dimensional chess game. There are all kinds of possibilities.(4)
TA: Does it feel like itâs going to be a close vote?
JO: I honestly donât know.
TA: What do you think of the performance of your former co-directors?
JO: Well, I think they have done as much as they could, given the Bancroft family controlsâŠNow the committee (of independent directors) is working and representing in their mind the best interest of all shareholders. Theyâre thinking of total shareholder value, not necessarily whatâs good for the company, people, reporters, or anyone else. So I understand their mentalityâŠTheyâre worried about being sued or not representing all shareholdersâ best interest. So that makes sense. But theyâre in a different position from the Bancrofts and from me.
TA: Is there anything to this concern that there might be some liability for directors who donât take the News Corp. offer?
JO: Thereâs a lot to it in an age when all the hedge fund and arbitragers investors, who have bought stock since May 1st, are happy go to have their lawyers sue anybodyâŠthe whole family and directors.
TA: You can always sue.
JO: Well, whether that has any standing I donât know. Thereâs an unusual clause that I mentioned in my statement. I said: âThe Bancroft family and trustees tried to protect this public service role of Dow Jones by writing into the companyâs certificate of incorporation, âthe right of the controlling owners to consider the effect of the business transaction upon the independence and integrity of the corporationâs publications and services and social and economic effects’ ” …They knew the family would be tested someday by an offer like Rupert Murdochâs.
… On the point of this journalistic tradition of strict separation between political opinions and news, the potential conflicts would be amusing—funny if they werenât so serious. Imagine, in 2001 (Rupert Murdoch’s younger son) James Murdoch gave a speech attacking the Western media for being too critical of the Chinese communist government and its human rights violations, and he criticized the Falun Gong as an âapocalyptic cult.â (Around the same time) WSJ reporters were reporting the Chinese communist government was murdering the Falun Gong. The paper won got a Pulitzer Prize for it; It was a fantastic, detailed piece of reporting. What is Murdoch going to do with that kind of thing? For years, the editorial page has been critical of the Chinese communist human rights violations and has not gone along with the âbusiness as usualâ of American businesses that want get in there and do business at any price. The editorial page has been critical of Yahoo, Google, and others for censoring their pages. Thereâs a direct conflict of interest. It’s hard to imagine how it’s all going to fit together.
After the family said âwe can see some reasonable combination for partnership,â I made a public statement then that said Dow Jones shareholders are blind to historical facts if we ignore Murdochâs past easy promises, which he did not keep to the British government and editors of the Times of London and Sunday Times before he purchased them, or to the liberal New York Post. (As I said in the statement:) “Itâs hard to imagine Rupert Murdoch publishing the New York Post in midtown Manhattan with all of his personal and political biases and business interests reflected every day, while publishing the WSJ in downtown Manhattan with no interference whatsoever in its editorial positions or news coverage….”
TA: Well, weâre coming to the moment of truth where it comes down to a binary decision—yes or no—the Bancrofts and the rest of the shareholders are probably going to be receiving a proposal. Say they all vote âno,â what does the Dow Jones do? What are the alternatives to News Corp.?
JO: One fear Murdoch is playing on is that he walks away and the stock drops. My answer is of course it will. It was at $36 before he dropped by with an offer, and it would go back to $36 to $40âŠMy own financial advisers tell me that the stock would keep some of its premium because what used to be a speculative premium has now been proven in the real world: Somebody thinks this brand-name company is worth a lot more (than the stock market had valued it before the offer)âŠAlso, the idea that the Bancrofts would never sell has been proven wrong. So Iâm not worried about the stock going to $5 if Murdoch goes away; it would go down for sure, but I donât think as much as that. If Murdoch withdraws, youâve got this Greenspan offer to invest (5) in the company, buy out the unhappy shareholders, put some cash in. So I donât think itâs a disaster if the company goes back where it started… I think itâs a viable companyâŠIt wasnât for sale before; It doesnât have to be now.
Damage has been done though. Damage has been done. There are going to be great questions about the management people who seemed to have been open to, if not anxious for, a Murdoch takeover. Some Bancroft family members are very upset with (current Dow Jones CEO) Rich ZanninoâŠ
TA: Are you?
JO: Not so much. I think he did a very good job with Dow JonesâŠturning the company around in the last six years. I donât think heâs the black hat that the news side thinks he is. Of course, he had to cut back costs; $250 million dollars of expenses are not taken out of the company without making enemies. And that was a tough thing. But I think he did it with as much grace and good judgment and protection of the quality of the papers as possible. He even found ways to enhance it. I think the WSJ is a better newspaper today under this new format (with a greater emphasis on news analysis). I think (the ill will against him among family members was caused in part by) the way he presented the case to the board of directors. Heâs being criticized for being too critical of Dow JonesâŠof his own strategic plans. (He over-emphasized) the concerns he has. So it may appear to some that he lost faith in what heâs doing.
TA: Ten years ago, News Corp. was not the player it is today. With the right management, could someone take Dow Jones to become a media powerhouse in ten years?
JO: I would be more modest in my ambitions. It could be a successful, viable, healthy, profitable, smaller, leaner company—smaller than Time Warner and News Corp. It had a good year last year. It was one of the only newspaper companies that had advertising-revenue increases, circulation increases, increases in the online edition, profit up 13 percent. It wasnât in [the condition] of some other newspaper companiesâŠbecause people like Rich and Peter Kann had been building the electronic businesses to the point where it was about 40 percent of the operating income of Dow Jonesâfar higher than electronic businesses of the New York Times or Washington Post. I’m afraid that itâs fear itself thatâs driving the sale of the Bancroft family.
TA: With a shareholder vote all but inevitable, what do you say publicly to the Bancrofts?
JO:I am saying privately to many of the Bancrofts, and would say publicly: We should not sell Dow Jones and Ottaway Newspapers to Rupert Murdoch. If some of the family members want to sell their Dow Jones shares, let us find a way to buy them out that is not damaging to Dow Jones and its reputation for absolute integrity in reporting and analyzing global business news. Let us find new investors to help us build the company, and not sell it to a company like News Corp, whose core business is entertainment, and whose newspapers are either tabloid fluff or weapons to enhance the business and political interests of Rupert Murdoch.
1. Losing out to General Electric Co. in the 1991 sale of Financial News Network, which became CNBC.
2. A financial-data provider DJ bought in stages in the late 1980s, written down in 1997 and eventually sold at losses exceeding $1 billion.
3. , A partner at law firm Holme Roberts & Owen LLP in Denver serves as trustee for at least one of the Bancroft family trusts.
4. For a full breakdowns of shares and ownership, click here.
5. The former chief of the parent of networking site Myspace sent a letter to DJ’s board offering to buy about 25% of the common shares at $60 a share.
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.