When the News of the World scandal began to really explode at the beginning of the month some intrepid reporter went and tracked down members of the Bancroft family – the former owners of the Wall Street Journal – and asked them if they regretted selling their controlling stock of the newspaper to Rupert Murdoch’s News Corporation.
Since then, there has been some talk about the recourse available to the Bancrofts with an emphasis on a toothless special committee – which is supposed to ensure editorial independence – and how it could create some headaches for News Corp. I doubt it will matter.
But if the Bancrofts really do care about the Journal – or if a sub-segment of them do – there is something much more powerful they could do to screw Murdoch.
Offer to buy it back.
Remember, News Corporation paid $60 per share to the Bancrofts for their stake of Dow Jones & Company (the publisher of the Wall Street Journal). This represented an enormous 67% premium, or $2.24 billion, over the market valuation. In 2009, a mere 14 months later, News Corp wrote down the value of the purchase by almost half, accepting a loss of $2.8 billion. In other words, the value of Dow Jones is now back to, or even below the $35 a share it was at when the Bancrofts sold it.
Why not offer to buy it back at a theoretical valuation of $40 a share? The Bancrofts (or the members of the family that want to) certainly have some of the capital. They would essentially be using Murdoch’s own money to regain control of the WSJ at 2/3’s the price they paid for it. Clearly they would need to find other investors to be part of the group. But they couldn’t form the core of a new investor group.
Of course, you would say: Rupert Murdoch would never sell his crown jewel. But that’s the fun of it.
This week’s Economist references Nomura investment analyst Michael Nathanson’s assessment of News Corporation after the scandal:
Michael Nathanson, an analyst at Nomura, separated News Corporation into three hypothetical companies: a good one, based on television; a bad one, which makes films; and a downright toxic one, which runs newspapers. He suggests investors focus on the former.
An offer by the Bancrofts would force Murdoch to tell investors what type of company he intends to run. Refusing to sell the Wall Street Journal could confirm investors worst fears that Murdoch intends to cling to his newspapers empire. Worse, he would have to do this at a moment when defending that option is the most difficult for him. It could further weaken him as CEO in the eyes of investors and potentially speed up efforts to replace him. So even if the Bancrofts were rebuffed, it would allow them to extract some revenge for how Murdoch treated the Journal after their departure. On the flip side, if accepted, the Bancrofts would recapture their prized asset at a fraction of what they paid for it.
Of course, in The Man who Owns the News biographer Michael Wolff hardly paints the Bancrofts as a united group. Quite the opposite. So I’ll admit the above scenario does not feel all that likely: the Bancroft capital is no longer sufficiently concentrated. But it would have made for an interesting power play to observe.