Saturday, May 05, 2007

What to Do When Rupert Calls?

What to Do When Rupert Calls?

I DON’T regularly watch the Fox News Channel, but when I do, I hardly think it is “fair and balanced.” I confess to reading The New York Post, but more as a delicious treat than a trusted news source. When I lived in London, I picked up The Times of London on my way to work every morning, but felt that the once-august publication had moved a bit down-market.

As we all know, Rupert Murdoch is the owner and steward of each of those media enterprises. And the Bancrofts, the family that is the controlling shareholder of Dow Jones, last week found themselves in a difficult position — forced to consider selling the family’s beloved journalistic jewels to Mr. Murdoch, and not just because his offer of $60 a share is so extraordinarily large.

With some hesitation, given Dow Jones’s storied place in American journalism, let me explore a contrarian view: Mr. Murdoch may be the perfect publisher of The Wall Street Journal.

First, a couple of stipulations: Dow Jones, like the entire newspaper industry, is struggling. It is suffering a slow decline by a thousand cutbacks, notably abroad, where the company has retreated from building its European and Asian editions of The Journal. The company’s staff, like the physical dimensions of the daily newspaper, has been reduced.

Many Journal reporters and editors have bridled at the prospect of a takeover. Jesse Drucker, a Journal reporter and representative of the paper’s union, sounded the alarm in an e-mail message to his colleagues courting them to protest the deal. In his message, he suggested that the Bancrofts’ opposition so far to a deal “indicates that they are committed to maintaining the quality of The Wall Street Journal and all of Dow Jones’ publications and products.”

But an uncomfortable truth remains. The current state of financial affairs — caused by the continuing withering of print advertising revenues, shifting reader demographics and the seismic upheaval of the Internet — has made it extremely hard to continue “maintaining the quality” of The Journal (despite its clutch of Pulitzers) because sources of fresh investment funds are drying up. Dow Jones’s cash reserves have been further strained by the hefty dividends the Bancrofts have pushed for over the years. (Big dividends are in vogue in some newspaper quarters; The New York Times Company, for example, recently raised its dividend.)

So along comes Mr. Murdoch, who says he plans to invest more money in Dow Jones than anyone else imaginable. During an interview in his office on Thursday afternoon, he had this to say of the $5 billion price tag he had just attached to Dow Jones: “We don’t see that as the total investment at all.” In other words, even more money is on the way.

Mr. Murdoch spoke enthusiastically about opening new bureaus and expanding others. He wants to reverse The Journal’s diminished international strategy by investing heavily in the paper in Europe and Asia. He says he is spoiling for a fight with The Financial Times, in much the same way that he took the left-for-dead Times of London and made it a real competitor to The Telegraph. He talked about spending money on marketing and on greatly expanding The Journal’s brand online, leveraging the many media businesses he owns around the world.

The Bancrofts — like the Grahams, who own The Washington Post, and the Sulzbergers, who own this newspaper — are part of an important, even noble, tradition: family ownership of media enterprises dedicated to probing, sophisticated coverage of the world around them. Mr. Murdoch, for the most part, is part of a different journalistic tradition: sensationalism. So the Bancrofts, on journalistic grounds, have good reason to be wary of Mr. Murdoch.

Mr. Murdoch is also part of another tradition: farsighted, creative and risky business gambits. He has made piles of money by thinking ahead of many of his competitors. The Bancrofts have presided over a company that once held a dominant position in business journalism, and they let that lead, and the financial gains that came with it, slip through their hands.

As they confront their continuing financial challenges, the Bancrofts can sit around and pray that a deep-pocketed white knight emerges — Warren E. Buffett, Bill Gates or The Washington Post are said by insiders to be favored choices — but it’s hard to think that even if such potential suitors did buy it they would seriously invest in the business the way Mr. Murdoch claims he would. It could result in just another holding pattern.

The Bancroft family certainly faces a difficult choice, in no small part because Mr. Murdoch, despite promising to insulate The Journal by giving the paper a separate board, may still turn The Journal into the kind of media circus we otherwise know as Fox News and The New York Post. Still, it’s curious that the Dow Jones board has not pushed the Bancrofts harder to at least engage in discussions — because it’s so clear that if the board had considered Mr. Murdoch’s offer in a vacuum, it would have accepted it faster than you can say “Introducing the New Fox Journal Channel.”

Having said that, the Dow Jones board — which is being advised by Arthur Fleischer Jr. of Fried Frank Harris Shriver & Jacobson, Richard I. Beattie of Simpson Thacher & Bartlett, and Goldman Sachs — has no duty to consider the bid unless the family were to acquiesce first. (An aside: Has anyone on Wall Street found it odd that Goldman Sachs, which has been a longtime banker to Mr. Murdoch’s company, the News Corporation — John Thornton, a former Goldman president, is a News Corporation director — is now representing Dow Jones, with which it has never had a relationship before? How hard do you really think Goldman is going to push the News Corporation, considering that if a deal is ever struck, Goldman will want to make Mr. Murdoch’s company a client again?)

Dow Jones’s chief executive, Richard F. Zannino, appears to be a clear advocate of a sale to Mr. Murdoch, describing the benefits of a deal to the board this week, according to people at the meeting. A week before Mr. Murdoch made his bid, the two men had breakfast in Mr. Murdoch’s office. Mr. Zannino has been flirting with Mr. Murdoch for years — often over meetings put together by bankers like Mr. Murdoch’s longtime adviser James B. Lee Jr. of JPMorgan Chase. The News Corporation is also being advised by Nancy Peretsman of Allen & Company and Blair W. Effron of Centerview Partners.

Mr. Zannino stands to make a handsome personal profit if Dow Jones is sold, of course, but when the chief executive thinks that it is better to sell the company than to keep it, shareholders should consider that a clear sign that some sort of financial impasse has been reached.

The Bancrofts have clearly reached such an impasse — some of it of their own making and some of it attributable to revolutionary business shifts beyond their control. If the family cares about preserving the Dow Jones legacy and seeing the company continue to flourish, it’s time to be financially creative. Rupert Murdoch is knocking on their door.