Tensions Build Between Investors and Newspaper-Controlling Families

By: Family control of newspaper companies has long been seen as a necessary bulwark against shareholder pressure and unwelcome takeover bids, allowing publishers to focus on public service and the long-term health of their companies.

Now that structure is under pressure like never before, as media baron Rupert Murdoch sets his sights on taking over Dow Jones & Co., publisher of The Wall Street Journal, and as shareholders raise a storm of protest over how the New York Times Co. is being run.

On Friday, that pressure extended beyond newspapers to electronic news publishing as Reuters Group PLC, a major provider of financial information and news, said it had received a takeover approach.

All three companies have protections against shareholder activism, but signs of strain are showing. Dow Jones, like the New York Times, has a special class of shares with powerful voting rights that are only held by family members. Reuters has a foundation that was designed to thwart unwelcome takeovers, but its legality has been questioned.

Dow Jones has been controlled by the Bancroft family, descendants of Dow Jones correspondent Clarence Barron, for more than 100 years. As of now, the family has lined up only a slight majority -- 52 percent -- of Dow Jones' voting power against Murdoch's proposal to be taken over at $60 per share, a huge premium of more than 65 percent over the price of Dow Jones shares before the overture was made public on Tuesday.

Dow Jones' board said it would take no action for now, but it also didn't say "no" outright. The Bancrofts have resisted pressure to sell in the past, however they have also been reducing their stake in the company. They're also not unified against Murdoch since 12 percent of the voting power they control has not yet been spoken for, and there's the potential that a sweetened bid -- or bidding war -- could change their minds.

Several Wall Street analysts believe that the Murdoch bid still on the table could be too hard to resist, particularly given that the stocks of many newspaper companies have been pummeled over the past two years. Last month Tribune Co., a major newspaper publisher, went private after receiving relatively tepid interest from investors.

While Murdoch's interest in Dow Jones may be unique, partly because of its special clout in the business world and Murdoch's own plans to launch a cable news business channel at News Corp., his bid has renewed investor interest in newspaper companies.

That interest is "coming faster now because the companies are under more pressure, and the stocks are at historic lows," says Phil Murray, a newspaper broker at Dirks, Van Essen & Murray.

Reuters, meanwhile, is an entirely electronic information provider, delivering financial data as well as news to terminals used by investors and financial professionals, and thus unencumbered by printing plants, newsprint and the other high costs of producing newspapers.

That has great appeal to Thomson, a company that used to own newspapers and other traditional media but now operates many kinds of electronic information businesses serving legal, financial and health care professions.

Like Dow Jones and The New York Times, Reuters also has a measure of protection against takeovers, but it's not clear how effective that measure will be against a takeover bid from Thomson.

Reuters has long since passed from any relationship with the family of its founder, but it does have a special instrument called a "Founders Share" to prevent takeovers.

Also called a "golden share," it is held by the Reuters Founders Share Company Ltd., which was created in 1984 when the company went public.

The board of that company can invoke the voting rights attached to the Founders Share to defeat any proposed takeover, though there is some question under recent European law whether that power is absolute.

The board members of the Founders Share Company come from a broad swath of global society, including English nobility and former New York Times Executive Editor Joe Lelyveld.

Newspapers such as The New York Times and The Washington Post have long cited their independence as something that protects their value as public servants, allowing them to take risky moves such as standing up to the Nixon White House over the war in Vietnam.

Difficult economic times such as these are exactly what the founders of such companies had in mind when they put in place the two-tier share structures that allow families to retain stewardship over their companies, says Alex S. Jones, author of a book on a newspaper family dynasty and director of the Shorenstein Center on the Press, Politics and Public Policy at Harvard.

Those protections may become harder and harder to maintain as Wall Street demands ever more accountability from publicly traded companies.

Last month, New York Times Co. Chairman Arthur Sulzberger Jr. went to great lengths at the company's annual shareholder meeting to show that while his family was not relinquishing control, it was open to hearing shareholders' views about how the company is managed.

Nonetheless, investors withheld 42 percent of the vote for four Times directors elected by public shareholders, a largely symbolic gesture that still amounted to a rebuke of the Sulzbergers' financial oversight. The directors were already guaranteed a 20 percent approval from the Sulzbergers.

Family control was long seen as a protective moat surrounding newspaper companies from the frenzy of shareholder demands. But with bidders as powerful as Murdoch emerging -- whose $70 billion company could easily swallow Dow Jones for the $5 billion he's offering -- that moat may not be as wide as many believed.

"There is what you can legally do versus the reality of operating a business in the modern world," says Robert Broadwater, managing director of Broadwater & Associates, an investment banking firm focusing on media. "It is much more difficult for management and ownership groups to peremptorily ignore shareholder concerns because they can."


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