The Monday-at-5pm deadline has come and gone, and the WSJ, of course, has the
best coverage of What On Earth Is Going On with the Bancrofts and Dow Jones.
My favorite part comes at the end, when Christopher Bancroft, Dow Jones director
and key family trustee, decides to go incommunicado right when the deadline
Christopher Bancroft, an important trustee and a Dow Jones director who has
veto power over shares representing about 15% of the company’s votes, was
on a plane Monday from Boston to Dallas after meeting with Hemenway &
Barnes, and was unreachable during the hours before the family’s deadline,
according to people familiar with the matter.
The Dow Jones board’s ad hoc committee, which convened once at noon Monday
and was set to meet again at 5 p.m., postponed the latter session so it could
try to reach Mr. Bancroft when his plane landed.
Yet another one for the annals of how Bancrofts manage to shoot themselves
in the foot at every available opportunity.
The Journal does attempt to answer my
question about why Bancroft voting power controlling 28% of the company
isn’t good enough for Rupert:
As of early Monday night, family members holding about 28% of Dow Jones’s
overall voting power had committed to support the deal, most in the form of
written voting agreements which can’t be revoked except in the event of a
higher bid. That might be enough to deliver the company to News Corp. when
added to the 29% of overall voting power that is held by nonfamily shareholders,
a vast majority of whom are expected to vote for the deal…
But this would leave Mr. Murdoch with very little margin for error while awaiting
a shareholder meeting in September or October. If more than half the Bancroft
family’s voting power voted for the deal — which would be a public relations
coup for News Corp. — at least 32% of the overall voting power held by the
Bancrofts would provide a comfortable majority when added to the nonfamily
However, handicapping these nonfamily shares with any certainty is difficult.
Many are assumed to be in the hands of arbitragers who snapped up the shares
after the stock price spiked May 1 when news of the offer surfaced. But it
can’t be predicted how many no-shows there will be, and how many retail investors
remain in the stock. Votes that are not cast in favor of the deal would not
be counted and would make it more difficult for News Corp. to get a majority
News Corp. is understood to want a cushion. The company could be posturing
about how many votes it needs to go forward, because once News Corp. says
it believes it has enough votes, its bargaining leverage with the holdout
shareholders goes away.
I do understand that 32% would be a PR coup for Murdoch, in that he could then
claim a double majority: a majority of shareholders, by voting power, and
a majority of the Bancroft family. He might even see such an outcome as a mandate
for change, not that there’s any doubt he’ll shake things up regardless.
What I don’t understand is how 28% + 29% is "very little margin for error",
while 32% + 29% is "a comfortable majority".
Think about it this way: with 28% of the votes in his pocket, Murdoch needs
22% more to get to the necessary 50% majority. That 22% figure constitutes just
under 76% of the outstanding common shares. I can see how it might be hard to
get 98% or 99%, but 95% should be easy, and 80% should be all but automatic.
If the common shares vote in favor, they get $60 apiece; if they don’t vote,
their shares will be worth less than $40. Wall Street just doesn’t leave that
kind of money on the table.
If Murdoch is really worried about getting 76% of the common shareholders to
vote in favor, what happens when he has family votes accounting for 32% of Dow
Jones? Then he needs just 18% extra from the common shareholders, which would
be 62% of them.
In other words, getting a "yes" out of 62% of common shareholders
is easy; getting a "yes" out of 76% of common shareholders is not.
I don’t buy it: count me in with the "posturing" camp.
But what about my faith in markets? The Dow Jones share price closed at just
$51.56, giving a whopping 16% upside to anybody who buys here and sells at $60.
There’s got to be a significant risk this deal doesn’t go through, or the share
price wouldn’t be so low.
Or else, maybe, for once, the markets are wrong.