Super-voting share snub

02May07

The news that Rupert Murdoch’s News Corp. (NWS) has made an unsolicited bid for Dow Jones & Co. (DJ) story is custom-made for the financial blogosphere. It hits nearly every potential hot button from the rise of digital media, the death of newspapers, clashing egos and questions of fiduciary duty and shareholder rights. Not surprisingly there is a wealth of interest posts on nearly every angle. We touched on the topic yesterday, but clearly more has followed.

Before we highlight some of our favorite posts we want to make a point. The Bancroft family’s tutelage of Dow Jones is an abject lesson in the failure of a super-voting shareholder structure. One can argue that the ownership of the Wall Street Journal needed to be protected from the vicissitudes of the market for corporate control, but it has lead to exceedingly poor shareholder performance, prior to this takeover offer.

We would argue that no one begrudges the control that a founder/owner of a company possesses. Think of the late Sam Walton of Wal-Mart (WMT) or a Warren Buffett of Berkshire Hathaway (BRKa). Not only did they have a financial interest in the success of the company, but they also possess the leadership skills necessary to run these operations. They did not need the insulation of super-voting shares because they were already doing the right thing for shareholders.

The lure of super-voting shares is making a comeback. One high profile company, Google (GOOG), has a supervoting structure as do many of the hedge fund and private equity firms that plan on coming to the public markets. One could argue that these firms would not come public without these protections. In the short term this may be a good thing. The individuals running these companies are in all likelihood the best possible managers at this time. However with time and circumstance that can all change.

We know that thinking about the long-term is unfashionable these days, but what happens when this generation is no longer in the day-to-day management of these companies? One need only look to the Dow Jones to see what occurs. Super-voting shares allow the founding family to continue to earn non-pecuniary benefits from corporate ownership while allowing common shareholders to earn below market returns.

We do not know how this takeover dance between Rupert Murdoch and the Bancroft family will play out. The family (at the moment) seems willing to leave a great deal of wealth on the table by taking a “just say no” defense posture. What we do know is that non-family shareholders stand to lose a great deal if the Bancroft family continues to treat them with disdain.

In addition a sampling of thoughts on the topic from around the blogosphere:

Dennis K. Berman and Sarah Ellison at WSJ.com with a comprehensive piece on the deal.

DealBook wonders if the Bancroft family can be convinced to sell.

Chad Brand at the Peridot Capitalist has a great suggestion for the Bancroft family – end this charade once and for all take the company private.

Barry Ritholtz at the Big Picture lays out the case for a combined (and spun-off) NBC Universal-Dow Jones.

Daniel Gross at Slate.com on why Rupert Murdoch might (gasp) be good for the Wall Street Journal.

Allan Sloan at Newsweek wonders just how much the Wall Street Journal is worth?

Brett Arends at TheStreet.com reports on the huge potential gains some Dow Jones insiders (and board members) would receive if a deal went through.

Felix Salmon at Market Movers wonders if any newspaper can truly be independent?

Surprise, surprise. Steven M. Sears at Barrons.com on suspicious options trades prior to the news.

Stay tuned. This story is not yet over.

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