The Bancroft family has reportedly rejected a proposal prepared by its lawyers. The proposal was intended to protect the editorial independence of the Wall Street Journal and it was widely expected that it would be submitted to Rupert Murdoch this week. After debating the proposal, however, the family has apparently decided that it did not offer adequate protection for the paper.
To grasp the most striking thing about the rejection of the proposal you have to know something about the folks who prepared it. One of the law firms representing the family is Wachtell, Lipton, Rosen & Katz (they are also represented by Boston law firm Hemenway & Barnes), which is legendary for its defense of corporate boards and management against unsolicited takeover offers. Name plate lawyer Marty Lipton is often credited with inventing the so-called ‘poison pill’—a controversial tactic that prevents hostile takeovers by creating new shares of stock to dilute the ownership of the would-be acquirer. If Lipton—or the top-of-the-class, Ivy-league trained lawyers who work for him—has drawn up a plan to defend your interest in a company and you conclude it’s too weak, you might not quite be operating according to a map that has a lot of overlap with a territory called reality.
[More on the Bancroft Family follies after the jump]
When the family met with Rupert Murdoch a couple of weeks ago, they had presented him with a plan that would have created an independent committee that would have controlled the hiring and firing of the Wall Street Journal’s top editors as well as been empowered to make other crucial corporate decisions. The committee membership would apparently have been chosen at first by the Bancroft family, and later by members selecting their own successor. Murdoch, who had earlier announced that he would not accept any plan that would allow the Bancrofts to control the paper even while they sold it (also known as “eating your cake and holding it too”), apparently rejected the proposal immediately, and the family withdrew it at the initial meeting.
The new plan reportedly would have created a similar committee, but Murdoch would have had a role—in partnership with the Bancrofts—in selecting three of its five members. The remaining two members would be selected by the Bancrofts. Other details reportedly include some safeguards against layoffs and newsroom budget cuts.
So why was the new proposal rejected? No-one knows exactly. No-one really knows exactly which Bancrofts or Bancroft representatives did the rejecting. As this story has unfolded it has become obvious that the family is divided on the question of selling the company—with some members focused on making a successful sale to News Corp at the best price possible and others focused on protecting the integrity of the Journal.
Even the reports on the rejection of this proposal indicate continued dissension. The New York Times quotes a family spokesman as saying, “No proposal will be sent to News Corp. until it has achieved consensus among the family members and their advisers." Consensus is a mighty high-bar, suggesting the family may allow a vocal minority representing what we’ll call the Integrity Faction veto proposals that would otherwise be accepted by the Fence Sitters and the Sale Faction.
There’s a strong possibility that what the integrity faction wants is not only irreconcilable with what Murdoch would accept but irreconcilable with what is possible. Gary Weiss, who is not exactly a fan of Murdoch’s plan to buy Dow Jones, calls the Bancroft plans to preserve the editorial independence of the paper “utter nonsense.”
“Even if they come up with a way to keep Murdoch from interfering with the day-to-day operations of the paper, he still controls the purse strings and it is absurd to believe that his wishes will not be heeded,” Weiss says in a recent post on his website.
And its not just Weiss who is skeptical about the plans by some of the Bancrofts to achieve even stronger guarantees of independence for the Journal.
“The safeguards are not likely to get thicker. At some point, Murdoch will look at the suggestions and see that he has the costs of owning Dow Jones, but none of the benefits. No one has ever accused Murdoch of being stupid, and this will not be an exception,” writes Douglas A. McIntyre on Wall Street 24/7.
This afternoon we're moving the needle on the Murdoch Meter back to 80%. Rumors that the Bancroft family are rational appear to be overstated.
Dow Jones Scenarios Highlight Divide [Wall Street Journal]
Bancrofts demand assurances from Murdoch [New York Times via International Herald Tribune]
Dow Jones (DJ) Controlling Family: More Excuses [WallStreet24/7]
Bancrofts reportedly reject WSJ safeguard plan [Reuters]
Dow Jones Surrender Negotiations Continue [Gary Weiss]