A Small Band of Bancrofts Could Block Sale of Dow Jones to Murdoch

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How small of a Bancroft minority could block a sale of Dow Jones & Company to Rupert Murdoch’s News Corporation? In this morning’s New York Times, “Market Place” columnist Floyd Norris sketched how the nature of the supervoting shares of Dow Jones make it possible for a minority of the family to veto an acquisition if Rupert Murdoch attempts to buy the outstanding shares of the company through a tender offer.
“Under Dow Jones rules, Class B shares have 10 votes a share, while Class A shares — those traded on the New York Stock Exchange — have but one vote a share. When Class B shares are sold, however, they become Class A shares and lose their special voting rights. That increases the relative weight of the remaining Class B shares,” Norris writes. “At least theoretically, investors owning just 9.1 percent of the stock, or less than 8 million shares, could control the company if those were the only Class B shares left outstanding after the other shares were sold to Mr. Murdoch,” Norris says.”
DealBreaker ran some back of the envelope calculations and discovered that a minority controlling just around a quarter of the family’s Class B shares could prevent a successful tender offer acquisition by News Corp.
[After the jump, how a small minority of Bancroft shares could block a takeover.]

We begin by noting that the Bancrofts are not the only holders of Class B stock. When the capital structure of Dow Jones One Class B stock was divided into two classes, owners of common stock were issued one share of Class B for every share of common stock. Most of these have long since been traded on the public markets and converted to Class A. But there are still 2.4 million Class B shares held by public shareholders. We don’t know who these people are but it’s probably a safe bet to assume these long-time holders of the Class B shares are admirers of the current corporate structure and ownership. We can safely assume they would not tender to Murdoch.
The Ottaway family, which opposes the sale to Murdoch, controls an additional 1.2 million Class B shares. Together, the public holders of Class B and the Ottaways account for 3.6 million Class B shares, with the voting power of 36 million common shares.
Combined with the public B holders and the Ottaways, Bancrofts holding slightly less than 4.3 million Class B shares—or just 26% of the family’s total Class B holdings—could successfully resist a takeover by tender offer even we assume all the shares of common stock tendered into the acquisition. The refusniks at this level would control Class B shares with the voting power of just over 78 million shares of common, while the tendering common and converted shares would hold just over 77 million shares. To put it differently, Bancrofts owning just 4.9% of the company, combined with public owners of Class B shares with just 2.8% and Otttaways with just 1.4%, could block a sale to Murdoch. (See chart below)

A one percent shift toward tendering, however, would swing control of the company over to the Class A shares. But this would not necessarily give Murdoch the majority he needs to control the company because many of the common shares are owned by the Bancrofts and some employees of Dow Jones, some of whom have announced their opposition to the offer from Murdoch. This means that an even smaller number of Bancroft Class B shares might successfully oppose a takeover by Murdoch if they had the support of enough holders of the Class A shares.
There is, however, a lower limit to this process. If the number of holdout Bancroft shares slipped below 24%, the total number of Class B shares would total less than 7.5 million shares. This would trigger a provision of the Dow Jones rules that would automatically convert all the remaining Class B shares to common stock, eliminating the supervoting powers of the Bancrofts and the Ottaways and more or less guaranteeing that Murdoch would succeed in his bid to acquire the company.
Of course, no one is even sure if these kind of divisions in Bancroft voting are even possible. Much of the stock is held in trusts for the family but the details of those trusts are confidential.
Family Dissidents Could Block Dow Jones Sale {New York Times]