Did Rupert “Buy Off” Bancroft Advisers?

Yesterday, lots of Wall Street Journal staffers and one former Dow Jones board member, James Ottaway, talked to the Observer about what, in the final hours of News Corp.'s bid to buy Dow Jones, had increasingly become the central issue: Could Dow Jones set up a $30 million fund to pay the lawyers and bankers who had advised the Bancrofts on the sale-and have Rupert Murdoch foot the bill? A decisive number of the Bancroft family would agree to the sale if they could be relieved of the debt to their advisers. Dow Jones said yes, and so, in turn, did the Bancrofts.

But the question that lots of staffers and Mr. Ottaway asked was, can the lawyers and bankers have been neutral in their advice to the Bancrofts if they were being paid by the company that wanted to buy their company?

The New York Times explores the question today and gets some interesting, if finally inconclusive, results. “Any suggestion that the advice rendered to the family members or trustees by their advisers was in any way conflicted is completely baseless,” a Bancroft family spokesman tells the Times today. But:

Several family members, including Christopher Bancroft, who is a board member and opponent of the deal, have privately said they were misled, according to family members. These people also suggested that the advisers steered them toward selling, putting them in an almost untenable position to say no.

In fact, from the beginning, the Bancrofts appeared to be confused from one moment to the next what they were committing to as the negotiations with News Corp. unfolded. Answering a question we asked very early in the process, the Times reports:

In perhaps the most telling example, family members said that some of them did not realize they were effectively putting Dow Jones, publisher of The Wall Street Journal, up for sale two months ago when they agreed to meet with Mr. Murdoch.

“After a detailed review of the business of Dow Jones and the evolving competitive environment in which it operates, the family has reached consensus that the mission of Dow Jones may be better accomplished in combination or collaboration with another organization, which may include News Corporation,” a statement from the family said.

The statement was drafted by lawyers at Wachtell Lipton and presented to the board on May 31. By the time Christopher Bancroft read it at the meeting, it had already been leaked to The Journal. Mr. Bancroft, who thought it went too far in putting the company in play, immediately asked to have it recalled, but was told that it had already been posted on the paper’s Web site.

Now, that may seem like a small thing. But lawyers and bankers working with the Bancrofts would have known that a public statement that the company would be better off in the hands of a new owner essentially puts the company up for sale. Of course, the statement could have–and did–attract other buyers. But it essentially removed the possibility that the Bancrofts might just keep Dow Jones themselves. Non-Bancroft shareholders now had ammunition to compel the Bancrofts to sell. And advisers to the Bancrofts did not, some contend, take offers from other suitors seriously.

Also, as we've been reporting, Paul Steiger, the former managing editor of The Wall Street Journal, was on special assignment to direct the Journal's coverage of the sale. As we have noted, Mr. Steiger stands to profit, according to some reports, to the tune of $4 or $5 million from the News Corp. deal. (Through a spokesman Mr. Steiger has claimed the number to be exaggerated.) Mr. Steiger had also been mentioned as a possible board member of News Corp. should the deal go through.

It seems worth asking how the May 31 statement made its way into the newsroom.

At the very least, one wonders whether it was wise for Dow Jones to make the $30 million agreement. Couldn't that form the basis of some litigation over the merger?

Of course, the question would be, litigation on behalf of whom? The Dow Jones board wanted this to happen; so did many of the Bancrofts. Does anyone have standing?