May 31, 2007
Dow Jones: Now it Gets Interesting
The Bancroft Family yesterday issued a statement indicating that they would begin discussions with Rupert Murdoch's News Corp. concerning News Corp.'s $5 billion offer to acquire Dow Jones. In their statement, the family also indicated that they would consider other alternatives that might lead to a change of control of Dow Jones. The relevant parts of the statement are as follows:
After a detailed review of the business of Dow Jones and the evolving competitive environment in which it operates, the Family has reached consensus that the mission of Dow Jones may be better accomplished in combination or collaboration with another organization, which may include News Corporation.
Accordingly, the Family has advised the Company's Board that it intends to meet with News Corporation to determine whether, in the context of the current or any modified News Corporation proposal, it will be possible to ensure the level of commitment to editorial independence, integrity and journalistic freedom that is the hallmark of Dow Jones.
The Family also indicated its receptivity to other options that might achieve the same overarching objective.
The interesting legal drama here will be how the Dow Jones board reacts and the actions it subsequently takes. The Dow Jones board is certainly required under Delaware law to consider any offers and the family's position with respect thereto. But the board has its own fiduciary duties to shareholders, and unless it decides to initiate a change of control or break-up of the country (i.e., it enters Revlon mode) it is not required to agree to a sale of Dow Jones even if the Bancroft family so desires. And it is also not required to make the precedent decision to sell solely because the Bancroft's want it.
The Bancroft family has a controlling voting stake but only own approximately 25% of the economic interests in Dow Jones. And, per Dow Jones' certificate of incorporation, if the family does sell their shares to Murdoch outright outside of a complete sale of Dow Jones the shares will convert to ordinary voting shares of Dow Jones. So, in order for the Bancrofts to realize the full economic value of their shares they can only sell if there is a sale of the company itself. However, Delaware law is also relatively clear that the Bancroft family is not authorized to sell. This raises the possibility of stalemate for Dow Jones if the board and Bancroft family can't agree on both a sale and buyer. While this is unlikely to happen for practical reasons if nothing else, it does mean that things could get much more interesting.
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