Could the Bancroft Family Reject a 67% Premium for Dow Jones?

One of the things I look for when picking stocks is high insider ownership. The logic goes that you want people running the company you own to have their interests aligned with yours. Who is more likely to act in the interests of shareholders, someone with a guaranteed salary and bonus or someone with a large stake in the company and performance-based compensation?

However, few companies do fact have high insider ownership, so finding examples that fit the bill can be difficult. If a CEO gets options that are priced below market and vest immediately, he or she will likely sell them right away and not see any meaningful ownership maintained for the long term.

In the case of media company Dow Jones (DJ), you have very high insider ownership (the Bancroft family controls 64% of the voting rights), so you might think they have shareholders’ interests at heart. However, we get news that News Corp (NWS) has offered $60 per share for DJ, a premium of 67 percent, and yet reports have surfaced that the Bancrofts may be prepared to vote against the deal.

How on earth can the Bancrofts reject a $60 cash offer when their stock is trading at $36 per share? Isn’t that a huge disservice to DJ shareholders? Don’t they have a fiduciary responsibility to take the deal? Legally, probably not. They can vote their shares any way they want. Other shareholders should have been well aware that the family has been against a buyout for years, and should have taken that information into account when they made the choice to invest in the company.

Although the Bancrofts have every right to reject the offer, they should do the right thing for their other shareholders. They should take the company private. If you want to keep the company in your family, as it has been for more than 100 years, that’s fine and very understandable. However, when you are part of a public market, you do have a responsibility to your fellow shareholders. It might be legal, but it is absolutely unfair to DJ investors if you reject a $60 offer for shares that the market says are only worth $36 each.

The “low-ball offer” defense won’t work here. If you want to make financially irrational decisions, then take the firm private and run it any way you want. If you want to open the company up to outside investors, then make sure you treat your shareholders with respect. You own the stock, so it’s your choice which road to go down, but it’s unfair to try and have your cake and eat it too. People invest in public companies to make money. If you make it impossible for them to do so, then you shouldn’t be in the public marketplace in the first place.

Full Disclosure: No position in any of the companies mentioned

Enjoy this post? Subscribe and never miss another one: RSS | Email | Twitter

2 Thoughts on “Could the Bancroft Family Reject a 67% Premium for Dow Jones?

  1. rs6 on May 2, 2007 at 8:12 AM said:

    How do you think this compares with Google – at the moment, shareholders must be extremely happy with the stock’s performance, but how about when the inevitable downturn come around? The voting structure is one of the most restrictive, with the founders and a few key executives with almost all of the power. Do you think this sets a bad precedent that more and more public companies will follow? There is no way through voting that the shareholders can influence potential irrational financial decisions in this case either.

  2. Chad Brand on May 2, 2007 at 9:03 AM said:

    These types of voting structures aren’t that commmon. I don’t think they will become more popular as time goes on, but it is definitely something that investors need to be aware of. I doubt anyone will buy GOOG, but by buying the stock you are essentially giving up your shareholder rights. You need to have complete faith in management to act on your behalf. In the case of DJ, they have never proved to have anyone else’s point of view in mind. As for GOOG, it’s too early to know how they will act, but it is an interesting point to consider.

Post Navigation