Rupert Murdoch almost seems to be living up to the worst fears many had when made his bid for Dow Jones. Almost.

He’s been “flexing his muscles” by calling Wall Street Journal reporters, according to the Los Angeles Times. At least three reporters have had calls for him.

So what has prompted Murdoch’s calls? Does he want more favorable coverage of China? More “fair and balanced” Fox New Channel style reporting? A five-star review for the Simpson’s Movie?

Not quite. It seems that what Murdoch has been doing is attempting to keep the reporting staff of the Journal intact. The three reporters he’s called were considering leaving the Journal and Murdoch has asked them to stay.

“Murdoch, who has been vacationing in the Mediterranean in recent days, made the calls to the reporters from his yacht, the Rosehearty, named for the Murdoch family's ancestral home in Scotland,” the LA Times reports.

Scandal upon scandal! He’s got a yacht! It’s in the Mediterranean. Where are the reporters’ yachts? Where is the Mediterranean for the reporters?

We’re not sure why this is anything but a positive story for the Journal, its editors, its reports and its readers. As we maintained from the beginning, Murdoch did not come to destroy the Journal but to own it. And now he’s personally reaching out to reporters in an attempt to keep it intact.

But there’s already a movement to make something scandalous of these moves. “Some journalists in the newsroom took the gesture as a sign of Murdoch's commitment to keep the staff's quality high. Others said it showed that Murdoch would take a hands-on approach in newsroom affairs despite a special committee established to keep him from interfering in coverage,” the LA Times reports.

Heaven forbid! The owner is trying to keep his top reporters! It’s a clear violation of the editorial integrity of the newspaper, which apparently now means letting the newsroom fall report.

So who are the put-upon reporters who got the call? The LA Times named them as Tara Parker-Pope, Kate Kelly and Henny Sender. The latter two are DealBreaker favorites, who have broken important stories in recent months. (Tara Parker-Pope is a Health writer.) We’re sure they’re in high demand, and it just seems demented to expect that Murdoch wouldn’t fight to keep them on board.

Our question: is this what they were talking about when they said Murdoch would "interfere" with the Journal? If so, bring it on!

Murdoch's presence felt at Journal [Los Angeles Times]

This is a list of people who we respectfully submit are liars: CNBC’s David Faber, Thestreet.com’s Nat Worden, and Reuters. We believe these entities to be capital 'L' small 'i' small 'a' small 'r's because among them they share the distinction of having reported or re-reported this morning that there will be an official announcement of News Corp.’s Dow Jones victory tonight. Nothing personal, it’s just that we no longer believe the words coming out of the mouths of people who say anything—outright, implying, leading, lip synching—that even hints that this whole thing will be conclusively finished before hell freezes over. We WANT to believe them, we just can't. Know anyone you’d like to add to our list? Send his/her name to tips at dealbreaker dot com.

In other news, MySpace co-founder Brad Greenspan sent an open letter to Dow Jones shareholders detailing a new proposal (he’s done this before, several times) in which he would invest $600 million in cash and stock in three joint ventures with DJ. Greenspan says he’s received “interest” from five “credible” investor groups, though he would not disclose their names, and their profiles are set to private. Brad informed shareholders that he and his investors “can meet this week” in order to “firm investment commitments,” but starting next week things are going to be really tight for him, so if Dow Jones could really get back to him A-sap to nail something down that would be solid, just name the time and place, but seriously, get back to him soon, otherwise, who knows, he could be busy.

Dow Jones to Agree To Takeover by News Corp. [CNBC]
Dow Jones Deal Gets Closer [WSJ]
Dow Jones Soars As Deal Appears Near [thestreet.com]
News Corp., Dow Jones deal expected Tues [Reuters]
MySpace Co-Founder Makes Another Dow Jones Proposal [Bloomberg]

Geoffrey Raymond is at it again! Now he's gone off and painted good 'ol Rupert Murdoch in his classic style, but this time he's asking for a little help from the viewer. Raymond is displaying his masterpiece outside of One World Financial Center so that Wall Street Journal employees and tourists alike can add their feelings about Rupes directly to the piece. WSJ employees in red marker, everyone else in black, with Raymond acting as a moderator. Barring rain, Raymond will be there until the end of the week and then the painting is going to the highest bidder. By highest bidder we mean any bidder, as the eBay auction starting at $3,500 has no bids to date with just three days left.

To one man walking by who refused to stop but still seemed interested, Raymond said defensively, "It's not a picture of Rupert Murdoch, it's a picture of a moment in the history of the Wall Street Journal." Apparently this painting took only about two weeks to complete with Raymond rushing to finish before any official announcement about the fate of Dow Jones is announced. His painting of the $Honey is still a work in progress, he told DealBreaker — Raymond hasn't yet figured out the finishing touch.

After the jump we bring you some pictures of the painting's set up on Liberty Street.

The Annotated Murdoch [eBay]

Off to a slow start here this morning because of the rain in New York City. We had to wait for our interwebs to dry out. (Just like Alphaville, the deal blog at Financial Times, which has reportedly had trouble due to the flooding in England. Unless that's just Brit-speak for, uhm, one too many pints on Sunday night.)

But it’s back to business now. And by “business” we mean, of course, the saga of Rupert Murdoch, the Bancroft family and the Wall Street Journal.

One of the things we’re sure has been absolutely frustrating to anyone who has been following the endless tape of this story has been the complete lack of information about which members of the Bancroft family and its representatives control exactly which shares and which percentage of the votes. It was only at the middle of last week that we learned that Michael Elefante, the partner at the Boston law firm Hemenway & Barnes who is a trustee for two of the largest trusts holding shares for the family, can deliver a little less than half of the family's 64% voting stake. Let’s call that 30% of the total voting power of the company.

Today the New York Times reports that the leader of the opposition to Murdoch within the family, Christopher Bancroft, controls around 14.5 percent of the total Dow Jones shareholder vote as of January. And his cousin, Jane Cox MacElree, is running around with 14.8 percent. (Apparently no-one else has more than 4.3%.) But you have to read a bit between the lines of the Times—too often the stuff we really want to know apparently isn’t “fit to print”—to understand why they spend so much time talking about Chris and so little talking about Jane. It’s because Jane isn’t really involved with the Dow Jones stuff, and leaves the decision making to Chris. So you can count her shares as shares controlled by Chris. That gives him around a little more than 30% of the voting power of the company, or about what Elephante controls. To that you can add the “Never Murdoch” shares controlled by the Ottaway family to come up with a 36% opposed number.

In short, going into today’s big Boston Bancroft powwow, Murdoch is a bit behind. Probably at least 36% of the voting power of Dow Jones opposes him. He’s got 30% on his side. But Murdoch has a secret weapon: the 30% or so of the voting power vesting in shares that were once held by the general public and are now held by stock arbitrageurs, the Bancrofts, the Ottaways and a few people who aren’t paying any attention. Most of those shares will vote his way. To play it safe, let’s put that pro-Murdoch number at around 25%.

Which gives Murdoch right around 55% of the voting power of the company. Since he only needs 51%, that means he wins. But it’s close. And since we’ve been guestimating at a few of the crucial numbers, it’s possible that it’s even closer than this. If the numbers are shifted a couple points in the only direction—say, Elefante only has around 28% of the vote in his pocket and only 22% votes held by common shareholders go for Murdoch, he’s down to a losing 50%.

Which leaves us at the exciting possibility that we may be entering the rare situation where a very few amount of votes—perhaps those held by a small shareholder who doesn’t even remember he has the shares in his account (or his attic)—could swing the voting. In short, the Bancrofts may be meeting in Boston in 2008. But the voting may well be in Florida, 2000 territory.

A Family Meets Today to Hear the Complexities of a Bid for Dow Jones [New York Times]
Bancrofts To Consider Murdoch Bid, ‘Close Vote' Predicted [New York Sun]
Know Your Bancrofts [New York Magazine]

Renaming an institution like the Dow Jones Industrial Average and getting people to use its new name is a pretty difficult task. It’s doubtful that either residents or tourists living near or travelling to Auschwitz-Birkenau will take the extra effort to say "Former Nazi German Concentration Camp Auschwitz-Birkenau,” though Poland is hoping we’re wrong (it’s happened). Still, it seems like there’s a chance that Rupert Murdoch suddenly get all egomaniacal upon acquiring Dow Jones, and want to brand his territory.

Thestreet.com took a shot today and came up with: “The Fox Dow Jones Industrial Average,” “The Fox Business Network Average” and “The Rupert and Wendi Murdoch Industrial Average,” submissions that don’t want to call “awful” but maybe “not good.” Definitely “not funny.” Unfortunately, it’s easier to call out other people’s shoddy ideas than come up with your own, which is our way of saying, “we’ve got nothing.” (Carney nixed Asians Keep You Young Industrial Average). So, let us know if you’ve got anything.

Ready for the Fox Dow Jones Industrials? [thestreet.com]

We got so caught up in the excitement over the board of directors, Bancroft family, Rupert Murdoch, News Corp drama that we’d totally forgotten about the insider trading angle to this story. But fortunately we have the Securities and Exchange Commission to remind us that prior to the public learning of the deal, a Hong Kong couple with ties to Dow Board member David Li, chief executive and chairman of the Bank of East Asia, allegedly engaged in insider trading.

According to published reports, the SEC has issued a Wells Notice to Li, informing him that it plans on filing civil charges against him.

For those of you who have never gotten one—a Wells notice is a sort of like a bill from the utility company stamped Final Notice. Except that instead of shutting off your electricity, if you don’t respond to the notice you wind up getting sued by the SEC. It’s basically your last chance to convince them that they shouldn’t file a lawsuit against you. Or, as a friend of ours once put it, it’s a notice that it’s time to move your funds off-shore, get out of the country and hire some very good lawyers.

SEC to File Civil Charges Against Dow Jones Director [Wall Street Journal]

Rupert Murdoch's News Corp will acquire Dow Jones.

Although two members of the Bancroft family signaled their continued resistance to the deal by abstaining from last night's board vote or leaving the meeting before the vote, a key member of the board voted to accept Murdoch's bid. The story is buried in most of the news coverage, which focussed on the broader question of board approval. But this single vote almost certainly means that nothing can stand in the way of the deal now.

The key vote came from Dow Jones board member Michael Elefante. Most of the Bancroft family's shares are not held by individual family members but in family trusts controlled by trustees. For the first time yesterday, we learned that Elefante, a partner at the Boston law firm Hemenway & Barnes, can deliver a little less than half of the family's 64% voting stake.

Once we know that Elefante supports the deal, the math is so easy even the Wall Street Journal can do it. "That rough one-third of the company's voting power likely would be enough to cement a sale to Mr. Murdoch. That is because some 29% of the total voting power of the company rests in the hands of non-Bancrofts. Almost all of these holders, many of them arbitragers, are expected to support the deal," the Journal's report this morning states. In other words: 30% plus 29% equals more than the 51% needed to approve the deal.

So the much heralded and awaited for split in the Bancroft family has finally happened and it has the result of all but guaranteeing that Murdoch will get the company. We say "all but" only because there was earlier discussion that it might only take a small number of Bancroft shares to prevent the sale. Lawyers familiar with the transaction say this can be structured around and does not prevent a serious obstacle.

Dow Jones Board Approves Sale [Wall Street Journal]

When Wall Street Journal’s Sarah Ellison broke the story late Monday that Dow Jones chief executive Richard Zannino and News Corp’s Rupert Murdoch reached a tentative agreement over lunch to bring the News Corp’s bid for Dow Jones before the board of directors, many were surprised that the offer price hadn’t budged from original $5 billion, or $60 a share.

They shouldn’t have been. Throughout the months since Murdoch first approached Dow Jones representatives with his offer, advisers to Murdoch have coached him not to increase his bid. Early on some thought he might increase the price in an attempt to overcome resistance from some members of the Bancroft family. But Murdoch’s investment bankers advised him that it was foolish to bid against himself, raising his offer at a time when the Bancroft’s had not yet indicated that they were willing to sell at any price.

Some of Murdoch’s advisers believed that a higher, second bid might have actually invited a competing bid for the company if it was seen as Murdoch’s best offer. By sticking to the original bid, Murdoch may have discouraged other potential bidders who were not sure they could outbid the deep pockets of a cash rich News Corp.
Even after negotiations with the Bancroft family began, some observers thought Murdoch might increase his bid. “While the initial $60-a-share offer represents a hefty premium over where Do Jones’s stock was trading before Mr. Murdoch’s offer became public, Dow Jones hopes the Bancroft family’s ambivalence about the Murdoch deal could help the company extract a few more dollars per share,” Ellison writes in her story today.

The thinking in the News Corp camp, however, runs completely in the other direction. The Bancroft family had already extracted value from News Corp in the form of promises of editorial independence, and had dragged out the negotiating process—taking up time and energy from Murdoch and his advisers. These discussions and concessions have been seen as part of the price News Corp was paying to buy Dow Jones. In effect, they were counted as increasing the cost of the deal.

What’s more, the Bancroft family’s continued ambivalence despite the negotiations and concessions has frustrated Murdoch and his advisers. The view within the Murdoch camp has been that as long as the Bancroft family continued to resist selling the Dow Jones for non-financial reasons, there was little point in increasing the financial incentives.

“The Bancrofts kept saying that this wasn’t about the money,” one person familiar with the News Corp strategy said. “Murdoch decided to take them at their word.”

While initially trading higher this morning, the stock dropped today to its lowest level since the Bancroft family first agreed to meet with Murdoch at the end of May. This may indicate traders now believe that Murdoch will not offer a higher price than his original bid.

Dow Jones, News Corp. Set Deal [Wall Street Journal]

The co-author of the fabricated tale from Friday about News Corp. having bought Dow Jones is sticking by his story. Andrew Neil, who wrote the article with James Forsyt, and is “credible” because (in light of?) he edited Murdoch’s Sunday Times of London for 11 years, took issue with the fact that Dow Jones representatives called him out for lying. His take? “[The protestations] are rubbish...They’re all swearing at us because, I assume, they’re all out in the Hamptons.” Mr. Neil, the Times reports, was drinking at the Ritz at the time.

Earlier: Rupert Murdoch Does Not Own Dow Jones...Yet!
Interminable Dow Jones Saga Possibly Over?

Expert on Murdoch Insisted the Dow Jones Deal Was Done [NYT]

For a couple of weeks, shares of Dow Jones & Company have been trading below the $60 price Rupert Murdoch offered, which most likely reflects a slight discount for risk that the deal won’t ever go through, skepticism about the notion that Murdoch might offer even more money for the media company and the belief that the deal won’t close immediately. We’ve had the Murdoch Meter, which measures the chance of Murdoch buying the company at his offer price, fixed at 90% for some time. And shares have been trading between $58 and $57.

This morning world came from across the Atlantic that negotiations with the Bancroft family were done and a deal announcement was imminent. Shares jumped on the open and kept climbing despite reports on CNBC and DealBreaker quashing the rumor. They’re now at $59. This pushes our auto-arbitrage meter up to 95%.

Ordinarily we’d just correct the meter if it moved on fake news. But we’re hearing things that are convincing us that although the Bancroft family may not yet have formally accepted the offer, an announcement may be coming soon. The right people—lawyers, bankers—are busy this weekend, not making appearances at places we expected them to be. And they are clamming up, as they often do before a deal is announced to the market. From this, well, anti-leaking we’re reading an imminent deal.

Of course, since so much of this depends on what is decided a very few individuals who happen to be descended from people who bought the company a few generations ago, this could all change. But we’re following the arbs and fake news today and moving the meter up to 95%.

Still bitter over the Post’s coup that was the Keith Richard’s cover/headline, “I Snorted My Father,” British tabloids took the genius strategy of inventing the news this morning when it claimed that News Corp had bought Dow Jones. No stranger to taking liberties with facts (News Corp, as you well know, owns the paragon of journalistic integrity, thePost), the injured party issued a statement that “the story isn’t true.” Dow Jones shares gained 55 cents to $58.40 at 9:31 a.m. in NYSE composite trading and Lindsay Lohan smoked pot in the Port Authority with two trannies last night—pics inside!

Dow Jones, Bancrofts Are Still in Talks With Murdoch [Bloomberg]

It’s only been reported in one British paper (so let’s remain skeptical, because those publications have a tendency to lie) but according to The Business Rupert Murdoch has “succeed with his $5 billion bid for Dow Jones.”

Allegedly, negotiations have been completed (less, “we want more money,” more “editorial independence, don’t make this the Post, you can only hire and fire the top editors and publishers, etc”), the board says the deal will be accepted by the Bancrofts over the next few days and a formal announcement is expected net week. News Corp will apparently pay $60/share, a 67% premium on the $36/share price in April.

Like we said, no one else has this story, though one of the writers, Andrew Neil, is a former “Murdoch lieutenant,” so perhaps that adds a miniscule amount of plausibility. According to CNBC’s David Faber no deal has been reached, despite news to the contrary from “some rag in a far away place.” Anyone else care to comment?

EXCLUSIVE: Rupert Murdoch buys Dow Jones, owners of the Wall Street Journal [The Business via Gawker]
'Murdoch buys Dow Jones' report [The Guardian]

We were so busy bringing you the news that the board of Dow Jones & Company and News Corp have agreed in principle on a plan to protect the editorial independence of the Wall Street Journal (apparently no one cares about Barron’s), that we neglected to update the Murdoch Meter.

Contrary to the suspicions of some, the meter isn’t set by the arbitrary whims of the DealBreaker editors and reports. It’s set by the interns.

Just kidding. We employ a complex formula employing market variables to distill the meter’s current standing. Without going into the details of our secret formula, we'll give you the outlines. We take the current share price compare it to Murdoch’s offer, and discount for information we think may not yet be fully digested by the market. Right now the Meter tells us that Murdoch has about a 95% chance of acquiring Dow Jones. (In case you need a more recently updated version, you can now click here.)

By the way, the deal is not quite done. Although the Dow Jones board, which includes representatives of the Bancroft family, may have more or less reached an agreement with Murdoch, the family has been surprisingly fractious and unpredictable through this process. It’s not clear that any attempt has been made to poll Bancroft family members on the proposal. Most likely, they haven’t even seen the details yet.

What’s more, the Wall Street Journal reports that there are still “open items” that remain. In our experience, these small “open items” that get left until the last minute either get swept away or become DealBreakers. Sometimes they remain open because nobody could be bothered to deal with the small things. After hour upon hour in a conference room, when the only thing left to drink is diet Sprite and all the cookies are raisin granola, you’re hardly in the mood to debate the eye-care plan for executive assistants. But sometimes those things end up mattering to someone who matters, or cost more than anyone imagined. We’ve walked back into conference rooms the day after to discover that our small “open items” list—usually kept on a legal pad or a laptop by the most junior person in the room—has become a list of DealBreakers. Beware the open items.

Update: Some are wondering whether this whole process is a farce. Gary Weiss writes of the agreement to protect the editorial independence, "I think any such agreements aren't worth the paper they're written on, but then again I'm cynical."

Dow Jones, News Corp. Agree On Set of Editorial Protections [Wall Street Journal]

Less than twenty-four hours after the board of directors of Dow Jones announced they were taking over negotiations with News Corp, Financial Times publisher Pearson and General Electric announced they were dropping plans to make a joint bid for the company that owns the Wall Street Journal.

The two companies had been negotiating with each other over a deal that would have combined the financial news network CNBC, Dow Jones and the Financial Times. Critics of the proposed plan said that it was too complex, would cost too much and was likely to result in job losses at the newspapers. Shareholders at Pearson had already begun to object to the company spending heavily to buy another financial newspaper. And some wondered whether antitrust authorities in the US and Europe would even permit the combination.

But for all its problems, the potential partnership was arguably the only credible alternative to the offer from News Corp. Despite the Bancrofts publicly saying they would sell the company under the right circumstances and a hunt by union representatives for an alternative buyer, no one else has emerged with a firm offer for the company. Right now it’s Rupert or nobody.

Pearson, General Electric Drop Plan for Dow Jones Bid [Bloomberg]

On the stage of comic Dow Jones bidding foils, enter Brad Greenspan (pictured, really leveling with us), otherwise known as the guy who owned the nest that MySpace hatched in. That is until Rupert Murdoch stole the hatchling for 0.1x, which is something 'Beenspan' is more than a little bitter about.

Beenspan outlined his vendetta bid in a letter to the Dow Jones board. He wants to buy 25% of DJ’s stock at $60 a share (about $1.25bn), opposed to the people who want to buy 100% of DJ’s stock for $60 a share or more. This, apparently, gives the deal the flexibility to provide willing sellers with liquidity, while ignoring the people who don’t want to sell in the first place. It also gives Beenspan the ability to avoid explaining why there isn't enough cash in his wallet, which can be an embarrassing first date.

What Beenspan brings to the table are these new-fangled things called social networks. Scratch that, they aren’t social networks, they’re business networks. It’s not Web 3.0, it’s Web 3.05, beta – the WSJ as a business network with user-generated content, enhanced interactivity, and other buzzwords. Beenspan also wants to tart up the WSJ with the revolution that is video content, lots and lots of video content.

This original brilliance provides the following relative advantages, according to Beenspan's letter:

1) KEEPS THE DJ/WSJ INDEPENDENT FOR THE BENEFIT OF LARGE CONSUMER BASE. (or at least free of a “fair and balanced” take on finance)

2) PROVIDES PREMIUM LIQUIDITY EVENT. (at a convenient discount to other premiums)

3) ALLOWS DJ TO GO ON OFFENSE. (essential when WSJ plays the Colts)

4) UNLOCKS HIDDEN VALUE. (like when you duck behind the last gray block in stage 1-3)

5) PROVIDES UPSIDE FOR EVERYONE! (“Myspace Tom” will be your friend and business partner, and so will Amber, who insists that she’s online in a video chat room right now and that you don’t need a credit card to talk to her)

Sheer Bradness [ValleyWag]

The board of directors of Dow Jones will take over the negotiations on the future of the company, the Wall Street Journal is reporting. The Journal says that the describes the board as “frustrated by the Bancrof family’s foot dragging in its negotiations with News Corp.”

This new move by the board, which had taken a deferential stance to the Bancroft family until today, makes it far more likely that Rupert Murdoch’s New Corp will buy succeed in buying the company.

“In recent weeks, members of the Bancroft family had grown wary of any deal with Rupert Murdoch's News Corp., and had been laboring over a proposal to safeguard the editorial independence of Dow Jones,” the Journal’s Sarah Ellison writes. “But as the family's negotiations with each other and their advisers continued with no resolution in sight, the company's directors were growing increasingly concerned that by not responding to Mr. Murdoch, the family was endangering the negotiations.”

The Murdoch Meter has jumped up another five points to show a 90% chance that News Corp will buy the company.

Dow Jones Board Takes Over Talks [Wall Street Journal]

The potential bid for Dow Jones from GE and Pearson is looking even shakier today. Yesterday we noted that newsroom rivalry might derail support for the deal among employees of the Wall Street Journal and the Financial Times. Today the Wall Street Journal's Heard on the Street column points to other constituencies that are raising objections to the deal, including at least one member of the Bancroft family and some prominent shareholders of Pearson.

Heard on the Street agrees with our analysis that a Pearson-owned Dow Jones would likely seek cost-savings by reducing overlap between the Journal and the Financial Times.

The easiest way to meet the cost-savings goals would be for the newspapers to cut their biggest expense -- journalists. The Wall Street Journal has roughly 700 reporters and editors, and about 100 of them work outside the U.S., while the Financial Times has 510 journalists, the majority of whom are in the United Kingdom. While it is unlikely the two newspapers would be combined, they could share some stories, allowing the FT to cut its staff in the U.S. and the Journal to cut back in Europe.

The GE-Pearson bid looks weaker every time we glance in its direction. The Murdoch Meter gets moved up to the 85% mark today on the expectation that enthusiasm for this bid will continue to fade.

GE, Pearson on Defensive [Wall Street Journal]

Is Rupert Murdoch expressing unbridled confidence ("I can take a few days off, Dow Jones will be there when I get back") or throwing in the towel?

Check out the full picture after the jump.

Although Pearson PLC is being called a possible ‘white knight’ bidder for Dow Jones & Co, many in the newsroom of the Wall Street Journal are not enthusiastic about being bought by the publisher of the Financial Times. Reporters at the Wall Street Journal, many of whom regard the Financial Times as an inferior paper with low-quality “Brit journo” standards of fact-checking and sourcing, are worried that ownership by Pearson will deteriorate journalistic standards at the paper, a source at the Journal told DealBreaker.

“I took a straw poll around the office. A lot of people are worried about what this will do to the Journal’s reporting,” the source said.

Word began to circulate late on Friday afternoon that General Electric and Financial Times publisher Pearson were “in talks” about a potential joint offer for Dow Jones & Co. Over the weekend, the story ran in the Financial Times, the Wall Street Journal and the New York Times. A decision on whether or not to make a bid is expected to come within days.

A news of a possible bid from Pearson and General Electric may have the ironic effect of making the bid from News Corp more attractive. While News Corp chairman Rupert Murdoch has promised to spend more on the Wall Street Journal, expand its international presence and has announced plans to launch a new cable news network for financial news that may give Journal reporters more outlets for their reporting, a bid from Pearson and General Electric would likely involve mostly cost-cutting synergies.

[After the jump, the not-exactly-surprising news that Journal reporters aren't totally psyched about working for the publishers of the Financial Times.]

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]

It looks like the Bancroft family blinked first, issuing a proposal on editorial independence to NewsCorp today. Murdoch’s not likely to agreed to the proposal, however. Even the Bancroft’s don’t sound too hopeful, noting that “This is not a done deal.”

Reporting on itself, the Journal said that negotiations between Murdoch and the Bancrofts would only continue if family is convinced that it has safeguarded. But it’s safe to say that Murdoch acquisition ambitions moved one step closer to reality with this move by the Bancrofts. One rule of negotiating deals it that the side that comes back to the table first certainly isn’t looking to walk away altogether.

Also, last week Dow Jones granted 135 managers eligibility for severance pay in the event of new ownership. As part of this move, Dow Jones CEO Richard Zannino's current golden parachute, which is worth $19.5 million would increase by 20%-30%. Nothing like promising management a payday to get them behind the deal.

Both these events would have moved the needle on the Murdoch meter if not for the ominous sign that arose yesterday: Jim Cramer started giving unsolicited advice to Murdoch. This clearly spells trouble. Any progress from the Bancroft move and the new golden parachutes was completely erased by the entrance of the first citizen of Cramerica.

[This report filed by Senior Rupert Murdoch correspondent Peter Ribic.]

Bancrofts Set Revised Safeguard Proposals [Wall Street Journal]
Dow Jones Expands Its Golden Parachute [Slate.com]
Rupert’s Eleven-Year Hunt [New York Magazine]

We touched on this story in Opening Bell so we won’t spill too many pixels on it now. Suffice to say, we’d all heard that General Electric was looking for a partner to buy Dow Jones and defend its CNBC property against the challenge of a Fox Business Network-Wall Street Journal combination. But we didn't think much of it.

Sure, Microsoft was a natural partner, having built MSNBC with GE. And while Microsoft isn’t eager to become a newspaper publisher, maybe they’d want to get in on Dow Jones strong web presence. They used to have a taste for this sort thing, right? Until very recently, CNBC’s entire web presence was tucked away in a little corner of Microsoft’s MSN.

But that was then. This is web 2.0. The big players in the internet space aren’t so enthusiastic about creating content these days. And certainly not for paying people to create content. It’s all “user-generated” and “social networking” all the time—think MySpace, YouTube, and even Last.fm. Even CBS’s purchase of WallStrip might morph into something more sophisticated if they let a million WallStrips bloom and do for finance user-videos what FunnyOrDie is doing for comedy. Microsoft has the cash but not the desire to own Dow Jones.

The implausibility of all the “competing” deals that are currently “on the table”—none of which have actually gone through the trouble of being competitive with News Corp’s $5 billion bid and which are not actually on any tables—actually make Murdoch’s bid more likely to succeed. The Bancrofts, having very publicly declared a willingness to sell, must now look around and wonder: is that it? And, yes, it seems that it is. Last week we had Murdoch at 80%. At the start of this week, post-Microbalk, he’s reach 85%.

Rupert Murdoch has an unlikely—and probably unwitting—ally in his quest to acquire Dow Jones & Company: Democratic presidential front-runner Hillary Clinton. Last month Hillary spelled out some of her positions on taxes and economics, including a plan to increase capital gains taxes in a way that might penalize the family that controls Dow Jones if they held off selling now.

The Bancroft family, which owns around 16.4 million supervoting Class B shares that allow it to control Dow Jones, would face a large capital gains tax bill if they sold their shares for cash instead of exchanging them for shares in another company. But many political observers expect the capital gains tax rate—currently 15%—to go up if a Democratic candidate is elected president, meaning that the Bancrofts might face an even larger tax bill if they sold their shares of Dow Jones in the future. They would also face a higher tax bill if they exchanged their Dow Jones stock for stock in another company and sold those shares later. Selling to Murdoch now might be the last opportunity the family has to avoid higher taxes.

Clinton has promised to raise capital gains taxes, and other democratic presidential candidates have followed suit. It’s highly improbable that Clinton’s tax policies are intended to aid Murdoch in his bid for Dow Jones but there’s no escaping the fact that objectively-speaking, as the Communists used to say, Clinton is working for Murdoch’s interests.

This wouldn’t be the first time that Murdoch and Clinton have found themselves on the same side. Despite his reputation as a political conservative, Murdoch became a supporter of Clinton while she was a US Senator, even hosting a fund-raiser for her.

Supermarket billionaire Ron Burkle indicated yesterday that he may be interested with Dow Jones employee unions to make a bid for the company. The union representing newspaper employees at the Wall Street Journal has objected to the attempt by Rupert Murdoch's News Corporation to acquire the parent company of the newspaper, claiming that Murdoch would interfere with the editorial integrity of the paper to push his business and political interests.

Burkle is a unlikely implausible surprising hero to emerge for the cause of journalistic independence. He has little background in journalism, having made his fortune running a supermarket chain. He's been known to be more than a little bit politically active, and famously is good friends with Bill Clinton. And he's been known to threaten legal action against media outlets who have published material not to his liking.

It's far from clear how the acquisition would be financed. Burkle has a personal fortune worth an estimated $2 billion, meaning that if he spent every dime he's got he'd still fall $3 billion short of the bid for Dow Jones from News Corp. There has been speculation that Burkle and the union might finance a competing bid by taking on a high level of debt, which would potentially put the financially troubled company in an even more precarious position.

Sometimes, it seems, you have to destroy a newspaper in order to save it from Rupert Murdoch.

Burkle considers entering Dow arena [Financial Times]

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.]

Some of us around the DB HQs are very much into this Dow Jones, Rupert Murdoch story. Unfortunately, we melt when it rains (and don't do mid-town), and were therefore unable to stake out yesterday's meeting at the Wachtell offices. So we sent Intern Scott. His (wet) report here, his pictures after the lovely lady jump (let that one go).

By popular demand, I present to you my first entry for DB [small bow and preparation for disappointment]. Yesterday, Carney sent me to hang around outside the Wachtell offices in midtown to wait for Elvis Rupert Murdoch to leave the building. Our boy Rupes spent five hours in discussions with the Bancroft family, presumably in conference room 33F, notable for many famous transactions. I arrived at 52nd Street and 6th Avenue at the CBS building, where I met many of my “peers” — photographers, camera crews, bearded weirdos, and reporters. The media (and Carney because he’s part of the media circus) loved this story. So I waited for a bit and talked to some of the people in awkward footwear, learning that some of the more dedicated crews had been on-site since 10am. Most of them had a second crew waiting on 53rd Street to make sure to cover their bases, but here at DealBreaker we like to take our chances (but always get it right, of course).

Now, those of you familiar with 51 West 52nd Street know that there are two entrances, one on the north side and one on the south. Rupes entered on 53rd street covered by umbrellas around 1pm, but I had to gamble on from which door he would emerge. I checked out the scene on 53rd street, and decided to take my chances on 52nd, where I waited. Around 5:05pm everyone picked up their equipment and made for the door, but it was just some other old dude (they all look the same), not our boy. Finally, at 5:35pm, Rupey and a bunch of suits came out of the elevators and lingered near the elevator banks inside. He slowly made his way towards the 52nd street door (imagine my glee), as the assembled paparazzi outside got ready. He emerged, Burberry rain coat in hand, and was instantly hounded by reporters from CNBC and Bloomberg, as well as dozens of flashing cameras (including my own). You can see some of the shots I was able to take before he hopped in a black Escalade (too good for a Town Car but apparently not good enough for the many Maybachs that I saw hanging around) waiting on the corner and sped off under gray skies.

Quite an afternoon.

--Scott Bressler

Somewhere behind the sheer, black façade rising 38 stories from a sunken plaza on 52nd Street and the Avenue of the America, representatives from News Corp are expected to meet with representatives from the Bancroft family today. Inside the building—officially the CBS Building but known to neighbors as the “big black rock”— are the offices of Wachtell, Lipton, Rosen & Katz, the law firm retained by the family that controls 64 percent of the voting power of the Dow Jones & Company.

The twin questions asked by those of us outside the tower are: what do the Bancrofts want and what will Rupert Murdoch give them? Murdoch, who heads News Corp, has offered sixty dollars per share for Dow Jones, a sixty-seven percent premium from where the stock had been trading before the takeover bid was announced. He has also offered the Bancroft family and the Wall Street Journal, which is owned by Dow Jones, both flattery and autonomous editorial board for the Wall Street Journal. He has also compared his own family to the Bancrofts, referring to both as newspaper families. Newspapers have described this as a “charm offensive.” What he hasn’t done is indicate that he might be willing to pay even more for the company.

This morning we’ve also heard another thing Murdoch won’t do: cede control of that autonomous editorial board to the Bancroft family. Over the weekend, the Wall Street Journal reported that the Murdoch has said the board would comprise "people with absolutely no business connections to me nor the family." Echoing a famous line about having cake and eating it, Murdoch reportedly said the family "can't sell [Dow Jones] and keep it" by controlling the editorial board.

Murdoch May Make Concessions, Up to a Limit, in Dow Jones Talks [Wall Street Journal]
Murdoch May Use `Charm Offensive' on Bancroft Family [Bloomberg]

Investment bankers at one of the banks advising Rupert Murdoch’s News Corp on the bid for Dow Jones & Company celebrated last night when news broke that the Bancroft family had agreed to meet with Murdoch. The bankers had advised News Corp not to increase its offer for the company, defying speculation that Murdoch might attempt to buy-off the Bancroft’s reluctance to sell with more money. Last night’s announcement by the Bancrofts that they would meet with News Corp and consider offers for the company was taken as a vindication of the bankers advice, a source working at one of the advisors to News Corp said.

“It was big smiles all around. High-five time,” the banker told DealBreaker. “We told them not to offer a dime more. We always thought these people would cave.” According to the banker, it literally was 'high-five' time, with arms extended and hands slapping in celebration of the Bancroft move.

Instead of offering more money Murdoch has for weeks engaged in what some have called a “charm and promise” strategy—asking for a meeting to introduce his family to Bancrofts, praising the companies media properties, promising to invest money to grow the Journal’s international bureaus and offering assurances of editorial independence. Everything, that is, except a higher bid.

Murdoch’s $5 billion bid came in at a sixty-seven percent premium to where the company’s shares had traded just prior to the news of his unsolicited offer. Many observers thought the family was holding out for more money before they would agree to meet with representatives of News Corp. Investment bankers advising News Corp on its bid recommended against offering more money prior to a meeting.

“The first rule of deal club is you don’t negotiate with yourself. There were no other bidders, and they wouldn’t come to the table. Was Murdoch supposed to outbid his own offer?” the banker said

One danger of offering more money prior to the opening of negotiations was that the new offer might be looked at by the Bancroft’s as a starting price, setting expectations for an even higher final selling price. A sixty-five dollar second offer might set the stage for a seventy-dollar closing price, the banker said his firm warned News Corp.

The investment bankers believed that eventually the Bancrofts would negotiate with Murdoch without the prompting of a higher offer. The term they used was “over-determined” to describe what they viewed as the most likely result, the source said. The source cited several factors putting pressure on the Bancrofts to negotiate, including pressure from public shareholders and institutional investors, dissent within the family, the absence of a competing bidder, the lack of a credible internal business plan to raise the share price near Murdoch’s offer, fear the Murdoch could withdraw his offer, declining advertiser enthusiasm for newspapers and consolidation in the business news industry.

“This is a win for Murdoch and News Corp and we’re just glad we helped them get here,” the banker said.

The Bancroft family’s decision to meet with Rupert Murdoch means Dow Jones & Company is for sale, according to an employee of the company.

“If they meet, they sell,” said a Dow Jones employee familiar with the thinking of the Bancrofts.

Last night the family released a statement announcing their willingness to meet with News Corp, the media company run by Murdoch, while the board of directors of Dow Jones held a special meeting to discuss the bid. Earlier the family had rejected the $5 billion bid and refused to meet with Murdoch. During the meeting the statement was called “preliminary” but it was not changed after the meeting.

The reporting from the Wall Street Journal and the New York Times also conveyed the impression that the Bancrofts are ready to sell Dow Jones, which they control through their ownership of super-voting class b shares.

“Dow Jones & Co.'s 125-year history as an independent media company could be nearing an end,” the Wall Street Journal’s reporters wrote in the story that broke the news of the Bancroft family change of heart. DealBook, the deal blog of the New York Times, echoed that sentiment, asking “Is this the beginning of the end of an independent Dow Jones & Company?”

The Bancroft family’s statement also announced a willingness to consider offers from other bidders.

Rupert Murdoch's bid for Dow Jones & Company is heating up again.

The family that controls Dow Jones agreed to meet with News Corporation, the media company headed by Murdoch . News Corp made an unsolicited bid for Dow Jones earlier this month. Until now the Bancroft family, which controls 64% of the voting power of Dow Jones largely through its super-voting class B shares, had refused to meet with Murdoch or representatives of Dow Jones to discuss the offer.

"Since first receiving the News Corporation proposal, the Family has carefully considered and discussed among ourselves and with our advisors how best to achieve that overarching objective, while serving the best interests of the Company's various constituencies,” the family said in a preliminary statement first reported by the Wall Street Journal, which is owned by Dow Jones.

“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,” the statement says.

In early May, News Corp offered $5 billion for Dow Jones, a sixty-seven percent premium over where the stock price trading before the bid. Through representatives on the board of directors of Dow Jones, members of the Bancroft family representing a majority of the voting power declined the offer. The board of directors has officially take no action on the offer. Since making the bid Murdoch has attempted to win support from the Bancroft family, but he has not increased his offer. In recent weeks some analysts began predicting that Murdoch would withdraw the offer if the family continued to refuse to negotiate.

The Wall Street Journal said the statement would be finalized after the conclusion of a meeting of the board of directors, which was underway tonight. At the time this was posted, no statement had been filed with the Securities and Exchange Commission on behalf of Dow Jones or the Bancrofts.

The statement may mean that the Bancrofts are willing to accept an offer from Rupert Murdoch. But by indicating a willingness to sell, they may also be hoping to attract other bidders. Tonight’s statement affirms that the family will also consider other bids.

Bancroft Family Plans to Discuss Dow Jones Bid With News Corp. [Wall Street Journal]
Bancrofts' Statement on Dow Jones Bid [Wall Street Journal]

On Monday, Pali Research said Rupert Murdoch would “walk away” from his $5 billion bid for Dow Jones after not winning the support of the Bancroft family in a measly three weeks. Analyst Jeff Greenfield wrote in a note to clients, “We suspect News Corp. will officially announce the termination of its acquisition announcement over the course of the next couple of weeks and leave Dow Jones to fend for itself,” a conclusion he came to not by inside information or anything but just, you know, a feeling he got. All over in less than a month. Just like that.

Today Deal Journal throws a wrench in the “Eh, I’m Bored With This, says Rupert” theory with a report by Citigroup analyst William Bird. According to Bird, there’s a 65% chance that Murdoch will raise his bid to $65 and it will be accepted. We’re pretty sick of this tale, as are, it would seem, many of you, but to anyone out there who hasn’t lost interest, tell us what you think. Or don’t. Carney’ll be around soon enough with a 10,000-word dissertation of his own.

Could 65 be the Magic Number for Dow Jones? [Deal Journal]
News Corp. May `Walk Away' From Dow Jones, Pali Says [Bloomberg]

Yesterday a Bancroft clan meeting took place in Boston to discuss various ennui of the whole News Corp. offer-shtick (Will scantily clad pictures of the genetically blessed Murdoch spawn, Lachlan, be included in the deal? Were Rupert and Colonel Sanders separated at birth?). What transpired? As is the norm for this as-exciting-as-backdating story, a whole lot of nothing. Some people (William Cox Jr., his four children, who together control 15% of the family’s total Class B shares) didn’t even show up, though it didn’t stop them from weighing in on the situation. Christopher Bancroft said that he opposes the sale to News Corp., fearing that it would threaten the Journal’s independence. Viewed as an “influential” member of the family, with his two siblings, Bancroft controls roughly one-third of the family’s stake in Dow Jones, and is also one of the company’s sixteen directors.

Yesterday Bancroft said that he’s “open to any situation that benefits the Wall Street Journal and Dow Jones and its shareholders. At the moment, I don’t see anything that would do that.” He added that he has a “strong emotional connection to the paper” and doesn’t want to “pull the rug out” on the staff, who he feels responsible for. Bancroft said that he even sent replies to letters from fifty Journal reporters (it’s unclear if these were actual letters or email letters but the sentiment is duly noted).

Meanwhile, there’s a bunch of unexpressed anger going on within the family. Some—mostly the younger Bancrofts—feel they haven’t truly been included in the decision making process. The youth vote also wants to explore the idea of a third-party investor, as the question as been raised regarding whether or not Dow Jones can survive on its own. And of course there’s the heated debate over who should’ve been covering “Pinch” Sulzberger when he stole home during the Bancroft-Sulzberger Kick-Ball Jamboree of ’89. But that's been brewing for a while, and doesn’t really have much to do with News Corp.

Key Dow Jones Holder Cites Opposition To Murdoch Bid [WSJ]

This much is certain. One way or another, the $5 billion offer from News Corp to buy the Dow Jones company will not be outstanding forever. At some point News Corp will offer more money for the company, the controlling shareholders will accept an offer, a new bidder will emerge or News Corp will withdraw its offer. Jeff Greenfield, an analyst at Pali Research, is telling his firm’s clients that the last possibility—a withdrawal of the offer—is most likely.

''We suspect News Corp. will officially announce the termination of its acquisition announcement over the course of the next couple of weeks and leave Dow Jones to fend for itself,'' Greenfield writes in a note to clients (quoted in the Associated Press).

Greenfield does not appear to have any inside information about the plans of News Corp or its chairman, Rupert Murdoch. Instead, the note relies on something more like common sense to make the call that the company will walk away from the bid. The Bancroft family, which controls Dow Jones through its super-voting class B shares, has twice indicated it won’t accept the offer. Greenfield describes waiting for them to change their mind as “silly.”

The note reflects the widespread impression that News Corp and Murdoch are growing frustrated with the refusal of the Bancroft’s to enter into a deal. So far, the Bancroft’s have refused to even meet with Murdoch.

Reuters quotes from the note: "We believe News Corp. is increasingly frustrated with the Bancroft family," said Pali Capital analyst Greenfield . "Given no apparent desire by Dow Jones's controlling shareholders to negotiate, News Corp. is left with little choice other than to walk away from Dow Jones [for now]."

Greenfield’s prediction that News Corp will withdraw its bid seems to rest on his view that the acquisition of Dow Jones is not a “must-have” for the company.

Murdoch may lose interest in Dow Jones bid [Reuters via CNNMoney.com]
Analyst Expects Murdoch to Drop Bid [Associated Press via Forbes.com]

One thing that’s become very clear in the past couple weeks is that a lot of people at Dow Jones don’t trust Rupert Murdoch to preserve the Wall Street Journal’s “journalistic integrity.” Everyone from Pulitzer Prize winners at the Journal, to Journal union representatives, to the Ottaways, to the Bancrofts seem to fear that Murdoch will damage the newspaper. On the face of it, this is rather odd. It almost requires us to accept that the various foes of News Corp’s offer for Dow Jones believe that Murdoch is some kind of monster who wants to acquire Dow Jones in order to destroy it.

It’s very unlikely that Murdoch wants to destroy the journal. And it’s also unlikely that the opposition is motivated by such nonsense. So what’s going on? Well, with a bit of work, we can see that the opposition is not so strange, and we don’t have to believe that his opponents are demonologists. There’s good reason for the friends of the Wall Street Journal to oppose him. They just haven’t done such a good job of spelling it out so far.

Mostly, Murdoch’s foes have pointed to examples which they claim demonstrate his interference with the way News Corp’s properties cover the news. But this evidence is easily countered with examples where Murdoch hasn’t. Indeed, some have said that Murdoch meddles with his low-brow tabloids but leaves the more prestigious titles alone.

“The way I see it, where editorial independence is valuable, Murdoch values it. Where it isn't, he doesn't,” Felix Salmon of Portfolio’s Market Movers blog has written.

And we can thank Salmon for helping us narrow the question of why News Corp’s offer is generating so much opposition—because people don’t trust that the values editorial independence enough to leave the Journal alone. But this brings us back to the question: why don’t they trust him. And to really get to the question, it helps to think of it in terms of Blaise Pascal’s famous wager.

A group of Pulitzer Prize winning journalists at the Wall Street Journal have written a letter to members and a representative of the family that controls the newspaper’s parent company, Dow Jones & Co, opposing a proposed acquisition by News Corp, Greg Sargent reports on Talking Points Memo. The letter is signed by a team of reporters based in China whose coverage won a Pulitzer this year.

“We are correspondents who report from China for The Wall Street Journal, and we are writing to urge you to stand by the Bancroft family's courageous and principled decision to reject News Corp.’s offer to acquire Dow Jones & Co,” the letter signed by seven journalists begins.

The letter, dated May 10th, accuses News Corp chairman Rupert Murdoch of allowing business interests to interfere with the journalistic integrity of news organizations owned by the company.
“News Corp. Chairman Rupert Murdoch has a well-documented history of making editorial decisions in order to advance his business interests in China and, indeed, of sacrificing journalistic integrity to satisfy personal or political aims,” the reporters write.

DealBreaker reported last week that Pulitzer prize winners at the Journal were being urged by opponents of the deal within the paper to write letters supporting the initial rejection of News Corp’s offer by the Bancroft family. It is not clear if this letter came as a response to that effort.

The Bancroft family controls Dow Jones through its ownership of most of the company’s super-voting Class B shares, which wield ten times the voting power of shares of common stock. Family members Leslie Hill, Elizabeth Steele and Christopher Bancroft received the letter, as did trustee Michael Elefante, who represents the family trust which controls much of the family’s shares. All four sit on the board of directors of Dow Jones.

Members of the Bancroft family also received a letter yesterday from Murdoch, dated May 11th, denying that he would interfere with the journalistic integrity of Journal.

“The businesses of Dow Jones, and in particular The Wall Street Journal, represent American journalism at its best. Your record of journalistic independence and integrity is second to none. Any interference -- or even hint of interference -- would break the trust that exists between the paper and its readers, something I am unwilling to countenance. Apart from breaching the public's trust, it would simply be bad business,” Murdoch wrote.

The editor of the Times of London also authored a letter denying that Murdoch had interfered with the China reporting or editorial policy of his paper.

Wall Street Journal's Pulitzer Prize-Winning China Reporters Write Letter Blasting Murdoch Takeover Bid [Talking Points Memo]

It’s letter writing mania! Not only did News Corp boss Rupert Murdoch write a letter Friday to the family which controls Dow Jones. His man at the Times of London, Robert Thomson, wrote to Journal shareholder James H. Ottaway Jr. defending his paper and himself against what he describes as “a challenge to the integrity of the journalists at The Times and to me personally,” the Wall Street Journal reports.

Last week Ottaway—whose family controls around 5% of the voting power of Dow Jones—wrote an op-ed in the Washington Post opposing Murdoch’s bid. Ottaway claimed the journalistic integrity of the Wall Street Journal and other Dow Jones publications “would be damaged if Rupert Murdoch takes over Dow Jones.”

What really seems to stick in Thomson’s craw is Ottaway’s accusation’s about News Corp’s business interests in China and the way it might affect the coverage of China in News Corp owned newspapers. “There is a clear conflict between his business interest in News Corp.'s Star TV broadcasts into the huge China market, where he has had to kowtow to government censorship, and the sharp criticism of Chinese violations of human rights, religious liberty and free speech that the Journal's editorial page has published. I doubt that freedom to criticize the Chinese government would continue under Murdoch's ownership,” Ottaway wrote.

Thomson, who is the top editor of the Times (which is owned by News Corp), defends his paper against the charge that it panders to China. “As a Beijing correspondent, I was in Tiananmen Square on the night of the massacre in 1989 and was thrown out of Tibet by heavy-handed Chinese officials, so the explicit allegation that we are pandering to the Communist Party came as rather a surprise,” he writes. Attached to the letter is a selection of editorials—leaders in Brit-journo speak—on China, which take a tough line with the Communist Party still running the country. The editorials, which date from May 2005 to January 2007, scold China’s leaders for arresting a journalist, internet censorship, “pervasive” corruption and developing space-based military weapons.

So who are these Ottaway characters who dare doubt the integrity of British journalists on the issue of China? Haven’t they even heard of the Opium War? Don’t they know that no-one can hate China like a Brit? After the jump, some background on how the Ottaways went from working at the Detroit Free Press to being Dow Jones second family.

This week in the Dow of Mudoch opens with the collective lenses of the media tightly focused on the key players—Rupert Murdoch and the Bancroft family.

(Of course, there’s also that news that Murdoch delivered to the family this morning and that the Bancroft’s are holding a meeting to discuss the offer. But we already touched on that stuff a little while ago. Now it’s time to delve into the fun bits: stalking the principals.)

As we predicted, journalists seem to be hunting down the Bancroft family where they live. Over the weekend, the Journal described the Bancroft’s as divided between those who “distrust Mr. Murdoch's media conglomerate” and “those at least willing to hear what Mr. Murdoch has to say.” The Journal also ran a family tree—just like the New York Observer, but less cute—that broke the family down into three factions. The Hill family is “considered to be the most willing” to take Murdoch’s offer seriously. The Branch descended from Jane Hill are described as “the most fervent about maintaining the Wall Street Journal’s independence.” The rest, apparently, is anyone’s guess.

The family that controls 64% of the voting power of Dow Jones & Co is reportedly meeting right now to discuss News Corp’s bid for the company. David Faber of CNBC reported just a short while ago that the Bancroft family, which controls Dow Jones through its super-voting shares, was holding a conference call “right now” to discuss the bid. This may be a sign that the family is re-considering its rejection of the News Corp offer.

Today Bancroft family members received a letter from Rupert Murdoch stating that he regrets the details of the offer had become public and promising to establish an “independent, autonomous editorial board” to oversee the paper. In the letter, Murdoch describes himself as a “first and foremost…newspaper man,” praises the Wall Street Journal’s “journalistic independence and integrity” and says his is “unwilling to contemplate” any interference with the paper’s integrity. He writes that he would like to appoint a member of the Bancroft family to the board of Dow Jones.

“This letter may give the Bancroft’s a way to accept Murdoch gold , if that’s what they’re looking for,” an investment banker familiar with the deal told DealBreaker. “They’re haven’t been any other bidders, which must put pressure on them to accept this offer.”

Murdoch probably hopes that this is exactly what effect his letter will have. He’s steadfastly refused to offer more money than his original offer. Last week, CNBC’s Charlie Gasparino reported that he had been advised not to offer more by his bankers at JP Morgan had told him not to increase the bid. As we explained on Friday, Murdoch’s strategy to win over the Bancroft’s now appears to rely on charm and promises to not ruin the paper.

Murdoch also promises to make efforts to keep the team of “journalists, editors, management” of the Journal and other Dow Jones properties, expand the Journal in Europe and Asia and improve the Journal’s New York headquarters.

Text of Murdoch Letter to Bancrofts [Wall Street Journal]

News Corp & DJ Update [CNBC.com]

The story at the end of week two of News Corp’s bid for Dow Jones is clearly the loss of confidence that this will end in an acquisition. No other bidders have emerged. News Corp hasn’t made any gestures that it might increase it’s bid. Quite the opposite—word is spreading that News Corp won’t increase it’s bid and that News Corp CEO Rupert Murdoch has told a close associate that he is not certain he will prevail.

Murdoch seems to be trying to use charm rather than money to win over the Bancroft family, which controls the company through its super-voting shares and has announced—through a representative on the Dow Jones board—that it isn’t going to take News Corp’s offer. He’s telling jokes. Keeping it light. On the News Corp earnings call he spoke of his admiration for the Bancroft family and Dow Jones management. And he’s more or less apologized for the fact that his offer became public, claiming he hoped to negotiate the deal in private—contrary to rumors that the leak came from News Corp. The point of this is to make nice with the Bancrofts, to take away the impression that Murdoch went public with his offer in an attempt to get the public shareholders to pressure the family into selling the company. No one likes to be strong-armed.

(After the jump: A completely paranoid deal judo conspiracy theory.)

Although they’ve continued to rebuff his advances and requests for a meeting, Rupert Murdoch noted yesterday that he and News Corp “admire the Bancroft family and the Dow Jones management. It's a great collection of assets including a great newspaper.” Of course, he went on to flatter himself as well, offering that “if we did not have strong confidence in our own business as well as in what could be created by combining News Corporation and Dow Jones, we would not have made the generous offer we did,” because, as he well knows, confidence is a major turn on.

Bloomberg notes that shares of Dow Jones had the biggest drop off in more than four years, based on the concern that Murdoch won’t be increasing his offer. The stock fell 4.8% yesterday to $52.40 at 4 p.m yesterday.

Murdoch keeps up WSJ chase [The Guardian]
Murdoch Woos Bancrofts With Flattery, Not Higher Bid [Bloomberg]

Related: Separted at Birth?

That was fast! The Securities and Exchange Commission didn’t waste much time going after investors who bought shares of Dow Jones & Co in the weeks prior leading up to the public revelations that News Corp had offered to buy the company at a steep premium. Yesterday, the SEC filed a lawsuit against a Hong Kong couple, Kan King Wong and Charlotte Ka On Wong Leung, accusing them of insider trading. The couple had purchased $15 million of Dow Jones shares prior to the May 1st announcement.

“It was their first purchase of Dow Jones shares -- and a profitable one,” the Wall Street Journal reports today. “After the unsolicited offer was disclosed May 1, Dow Jones shares rose more than 50%. Three days later, the couple had their broker sell their entire position in the stock for a profit of $8.2 million.”

The close timing of the purchases with the announcement make it highly unlikely that this was simply a case of lucky timing on the part of the Wongs. Adding to the suspicion that the couple had insider information is the risk they took on buying the $15 million of stock. Prior to the transactions, the Wongs reportedly had only $433,000 in their Merrill Lynch account available for purchasing equities. They borrowed money from Ms. Wong’s father and used margin loans to buy the stock. Another stock purchase was funded by a money transfer from an unknown person using a JP Morgan Chase account in Brussels. The stock purchases—the couple accumulated the stock over the course of a couple of weeks beginning April 13—were also a stark departure from the usual investment pattern of the Wongs. “The SEC said that prior to their Dow Jones stock purchases, the Wongs owned mostly fixed-income securities, as well as equities valued at $606,600,” the Journal writes.

The questions everyone is asking is: what did the Wongs know and how did they know it?

By now everyone knows that Rupert Murdoch must convince members of the Bancroft family to accept his offer if he is going to succeed in buying Dow Jones. But who are these Bancrofts? The New York Observer offers up a family tree of the clan that controls the fate of Dow Jones. It’s a reconstruction from wedding announcements, obituaries and some amount of real reporting (talking to sources and that sort of thing.) The Observer finds that the Bancrofts are far from a monolithic group of Boston Brahmins. In fact, “they are small magazine owners, teachers, power-boat racers, philanthropists, farmers, roller-derby enthusiasts, male models, lawyers, a cappella singers and Montel Williams fans,” the Observer’s Felix Gillette writes. And, as DealBook pointed out this morning, one family member—who is described as a roller derby enthusiast—poses topless on her MySpace page.

At last night's Alexander Hamilton dinner in midtown, Rupert Murdoch told a joke to the audience assembled by the Manhattan Institute. "Two rich guys walk into the Wall Street Journal," Rupert began. This got a big laugh and Rupert then professed to have forgotten the rest of the joke.

The incomplete joke was the perfect metaphor for News Corp's bid for Dow Jones & Co, the parent company of the Wall Street Journal. The bid hasn't gone anywhere since the first day, sitting out there in a sort of deal limbo as Murdoch lobbies the Bancroft family, which controls Dow Jones through its super-voting Class B shares, to at least meet with him ad listen to his proposal. But that hasn't stopped anyone from talking about it.

Murdoch may be cracking jokes in public but in private he has conveyed a different mood to his associates. A close advisor to Murdoch has said he may be losing confidence that he will prevail. Many observers of the deal, including David Carr of the New York Times, believe that Murdoch will eventually succeed in his attempt to acquire Dow Jones. But Murdoch himself may not be so confident these days, according someone familiar with Murdoch's current thinking. The advisor said that Murdoch has expressed doubts about his ability to acquire the company in the face of continued opposition from the Bancrofts. The advisor went on to say that it is possible that this is a pose--that Murdoch is lowering expectations, as they say in politics.

It’s unlikely that Rupert Murdoch will be hatching the next phase of his campaign to buy Dow Jones tonight. Instead, he’ll be chowing down at Cipriani in midtown, where he is being honored at the Manhattan Institute’s annual Alexander Hamilton dinner.

Fortunately, Cipriani is just a few blocks away from the offices of Skadden Arps, News Corp’s lawyers. So if the Bancroft’s decide to return his calls tonight, he’ll be able to start wheeling and dealing in short order.

Alexander Hamilton Award Dinner [Manhattan Institute]
Center of the Action [New York Sun]

If the phrase ‘jumped the shark’ hadn’t long ago done so itself, we might write that the news coverage of News Corp’s bid to buy Dow Jones jumped the shark this morning. The business news media is obsessed with the story—which just happens to be about the business news media. And sometime late last night and early this morning—to the sound of full-color print presses humming and newspaper delivery trucks idling—the coverage of the story really began to plumb the depths of its own navel.

This morning the New York Times delivered the news that—as the headline proclaimed—‘Wall St. Journal Editors Held News of Murdoch Bid.’ (Click here for Joe Weisenthal’s reaction in Opening Bell.) It’s a story that the Times editors viewed as important enough to run on the front page of the business section. So what we end up with is a story in a business section (the Times) about how a business news organization (the Journal) covered an acquisition about a business news organization (also the Journal). And now all the other business news organizations (CNBC, the wire services, DealBreaker) are reporting and commenting on that.

The Wall Street Journal’s Pulitzer Prize winners are being courted by a campaign to oppose News Corp’s bid for Dow Jones & Co, according to a source within the newspaper. The prize winning journalists are being asked to sign a letter opposing the bid. It is unclear whether the letter would include signatures from only Pulitzer Prize winners currently working at the Journal, or include the larger group of reporters who won while at the Journal who have since left. In the past ten years, the Journal and its reporters have won over a dozen Pulitzer Prizes.

The letter would resemble those that sometimes appear on matters of public concern signed by leading members of various academic or scientific communities. Recently a group of prominent physicists, including several Nobel laureates, sent a letter to US lawmakers urging measures to restrict the use of nuclear weapons by the United States. The WSJ Pulitzer letter would encourage the board of directors of Dow Jones, or possibly the members of the Bancroft family who control the company through their Class B shares (which have ten times the voting power of ordinary shares), to oppose the bid from News Corp to acquire the company, the source claimed.

It is not clear who is organizing the campaign, and DealBreaker has not yet obtained a copy of the proposed letter. Last week DealBreaker broke the news that Jesse Drucker, a Journal reporter and union representative, was encouraging colleagues to protest the deal by writing letters to three members of the Bancroft family who sit on the board of directors.

A List of the Wall Street Journal's Pulitzer Prizes [Wall Street Journal]

We saw a few new twists in the tale of News Corp’s attempt to acquire Dow Jones & Co. over the weekend. The most notable, mentioned in today’s Opening Bell, was the outburst from the Ottaways—whose name nicely conveys their message to Rupert Murdoch to stay “outta the way” of Dow Jones. The Ottaways are the other family in the Dow Jones saga, holding around 6% of the Class B shares and heaps and heaps of the common shares. Since those Class B shares have ten times the voting power of common shares, the Ottaways control around 5.2% of the total voting power of the shareholders.

A different type of shareholder also made her opinion of the deal known. Nora Vides of Ridgefield, N.J.—described by the (News Corp owned) New York Post as a “small shareholder” and by Gawker editor Alex Balk as “a whiny bitch from New Jersey” (probably the ultimate Gawker put down)—filed suit in Manhattan Supreme Court claiming the Bancroft family is “unlawfully” refusing to consider News Corp’s bid.

Wall Street Journal reporters are orchestrating a campaign to inundate three Dow Jones & Co. board members with letters urging them to “stand firm” in opposing the buyout offer from Rupert Murdoch. The three board members targeted are members of the Bancroft family, which maintains voting control of the company.

“As some of you know, there is a movement afoot to appeal directly, via letter, to each of the Bancroft family members that sit on our board. I am urging you to take part in this.,” Journal staff reporter Jesse Drucker says in an email addressed to dozens of Wall Street Journal staffers last night. “The Bancrofts are under tremendous pressure to accept News Corp's offer, and that pressure will only become greater in the likely event that Murdoch raises his bid.”

News Corp has made an offer to buy all of the outstanding shares of Dow Jones, which owns the Journal, Barron’s, MarketWatch, Dow Jones newswire and other media properties. Rupert Murdoch is the chief executive of News Corp. DealBreaker reported earlier this week that sentiment in the Journal’s newsrooms was running strongly against the deal. This morning the New York Times reported that there is “opposition against” Rupert Murdoch “among some Journal employees.” A union representing Journal newsroom and other employees issued a statement on Tuesday declaring that “the staff, from top to bottom” opposes the offer, the Times reported.

The three Board members targeted by the letter writing campaign are Leslie Hill, Christopher Bancroft and Elizabeth Steele.

“A short letter addressed to each of the three – make a separate copy for each – urging them to stand firm can only help our cause,” Drucker’s email says.

After the jump, read the full email urging the campaign to influence the board members.

Considering that he told his bosses at Goldman Sachs about the insane money making machine that is asset management years before they did anything about it, and sensed that the Japanese were up to something, re: Pearl Harbor, on December 7-- 1935, it’s not surprising to hear what The Crames told Liz Claman yesterday about the Deal of The Century:

Rupert Murdoch called me in 1996 when DJ was in the 40s, higher than it is now, and asked me if he should make a 73 dollar bid. I suggested at the time that family would reject it and that he should go directly to it. Obviously ten years have past, the stock is substantially down, and the company may be fed up.

Of course. Cramer knows about every deal. Way in advance. Eleven years in advance. Jim Cramer is eleven years ahead of all of us. He's living in 2018 right now. He already knows about SiriusXM buying Clear Channel-- at $2/share.

Cramer on News Corp's Dow Jones Bid [CNBC]

Despite yesterday’s news that holders of a slight majority of the voting power of Dow Jones & Co would vote to reject the bid from Rupert Murdoch, no-one seems convinced that the final chapter in this story has been written. And it hasn’t. The board of directors of Dow Jones met with its investment banking advisors to discuss the News Corp bid and assess the possibility for that a rival bidder would emerge, the Financial Times.

Goldman Sachs, which is advising Dow Jones, was expected to give the full board an update on the News Corp bid.

Goldman bankers were also expected to focus on an assessment of whether other media groups or private equity investors would come forward with a rival bid.

People close to Mr Murdoch said he had not heard back from the Bancrofts on Wednesday about his requests for a meeting in the next two to three weeks.

The talk of rival bids has so far been just speculative. One provocative guess seems to be the publisher of the Financial Times, Pearson. This would be a kind of market jujitsu, with Pearson defying calls that it shed its trophy media asset—the FT— and acquiring another. Various other media companies and private groups have been named as possibilities. Both by Deal Journal and Business Week have produced their own lists of possible suitors.

But one highly experienced mergers and acquisitions specialist we spoke with believes that rival bids are unlikely. News Corp’s initial bid included a huge premium, and valued the company at such an extraordinary earnings multiple, that it seems almost designed to scare away competition. What’s more, it’s not clear that any other media company stands to reap the synergistic benefits that available to News Corp—which is planning on launching a cable business news channel.

“Murdoch doesn’t make a bid like this unless he thinks he’s going to win,” a source familiar with News Corp’s mergers and acquisitions practice told DealBreaker. “He’s not kidding around with this. I’m not sure there are a lot of other folks eager to step into the ring with Rupert and try to grab this thing out of his hands, either.”

Dow Jones board meets bankers [Financial Times]

Footnoted.org's Michelle Leder caught Dow Jones' late Friday 8-K filing detailing severances for husband-and-wife team ex-DJ-CEO Peter Kann and ex-WSJ-publisher Karen Elliott House:

According to Kann’s agreement, he’ll continue to collect a salary of $995K through next April while he serves as Chairman and is eligible for a target bonus of $896K this year. Then there’s another $2.52 million worth of stock. In addition, once Kann retires as chairman, an unspecified number of stock options will continue to vest "as if you had remained in service with the company."...As for House, she’ll receive $1.7 million over the next 24 months and continued vesting of her options. One other interesting little tidbit about the two agreements: Kann’s was only 8 pages. But House’s was a whopping 38.

(There's a reason why you file these things late on a Friday.) Kann's staying on as Chairman, presumably so that he can advise management on how to make the stock do this over the course of five years...

... and they can do the opposite. Kann also has a non-compete through 2007. Given the company's performance, it might have been competitively smarter for the Dow Jones to forgo the non-compete and let Kann manage the competition as well as he managed DJ.

His and Hers [Footnoted.org]