Dow Jones Board Member Quits In Protest
Dow Jones Board Member Quits in Protest
http://online.wsj.com/article/SB118479154947870694.html
By SARAH ELLISON and MATTHEW KARNITSCHNIG
July 20, 2007
Dieter von Holtzbrinck, an heir to a German publishing empire, resigned from Dow Jones & Co.'s board of directors to protest the board's decision to endorse a $5 billion offer from News Corp.
"Although I'm convinced that News Corp. offer is very generous in financial terms," he wrote in a letter to directors Thursday, "I'm very worried that Dow Jones unique journalistic values will long-term strongly suffer after the proposed sale."
Mr. von Holtzbrinck abstained from a board vote endorsing News Corp. Chairman Rupert Murdoch's offer Tuesday evening, a vote that put the future of Dow Jones in the hands of the Bancroft family, who control 64% of the company's shareholder voting power. The vote was otherwise unanimous except for two of the four board members representing the family, but the family is divided on the News Corp. offer.
Mr. von Holtzbrinck's resignation is mostly of symbolic importance: If the deal goes through, he wouldn't be a board member any more. It nevertheless could resonate with the Bancrofts as the family prepares to convene next week to vote on the sale and perhaps sever its century-long connection to Dow Jones and its flagship paper, The Wall Street Journal.
The family's ambivalence still makes such a vote too close to call, and investors appear to agree: Dow Jones's shares continued their drift below the $60 a share offered by News Corp., closing Thursday at $55.40. The slip reflects the market's view that the deal may not pass muster with the family.
Stocks in takeover deals almost always trade below their offer price, due to risks in final closing and financing conditions. But this gap, known as the arbitrage spread, is a bit wider than usual in this case. The uncertainty of the family's position is making traders question whether it is worth paying $55 to earn another $5. All the while, they may be facing the risk that the stock would fall to around $40 a share or less should the Bancrofts reject the deal.
Dow Jones also yesterday reported a 27% drop in second-quarter net income on stock-compensation and restructuring charges.
The company took a charge of $11 million, or 13 cents a share, as the takeover-related stock surge inflated expenses for employee stock-based pay. Dow Jones's stock increased sharply after News Corp.'s offer became public in May. The shares had been trading in the mid-30's before the offer became public. The company also reported a charge of $6 million, or seven cents a share, due mainly to the elimination of about 100 positions, primarily in its consumer media group.
Dow Jones disclosed Mr. von Holtzbrinck's resignation in a filing with the Securities and Exchange Commission.
Mr. von Holtzbrinck, 66 years old, is the scion of one of Germany's most prominent publishing dynasties. In addition to the business daily Handelsblatt, his family publishes Berlin's Tagesspiegel newspaper and business weekly Wirtschaftswoche. In the U.S., the company owns six trade-book publishers, including St. Martin's Press and Farrar, Straus & Giroux; three college-textbook companies and Scientific American magazine.
Mr. von Holtzbrinck said his concerns about the News Corp. offer were based on News Corp.'s business practices and the objections raised by other shareholders, such as James Ottaway, who has been an outspoken critic of Mr. Murdoch. "I cannot prove that my worries are right," wrote Mr. von Holtzbrinck. "I can only refer to News Corp. business practices in the past, can only refer to Jim Ottaway's article in the Journal, etc."
Mr. von Holtzbrinck said in his letter that he didn't believe that a "special committee" on editorial independence would protect Dow Jones's journalistic integrity. Dow Jones and News Corp. have agreed on a set of editorial principles to protect Dow Jones's independence in the event of a takeover by News Corp. Those principles include a five-member committee that would serve as a buffer between News Corp. management and Dow Jones's editorial staff.
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"I do not believe that the "Special Committee" can finally prevent Mr. Murdoch from doing what he wants to do, from acting his way," Mr. von Holtzbrinck wrote.
"Dieter von Holtzbrinck has served Dow Jones with distinction as a Director since 2001," said M. Peter McPherson, chairman of the board of Dow Jones. "The Board has accepted his resignation with regrets and we wish him well."
After running the family business -- Verlagsgruppe Georg von Holtzbrinck -- for many years, Mr. von Holtzbrinck retired in 2006 and sold his stake in the business to his siblings. He plans to start a charitable foundation.
Mr. von Holtzbrinck was close to former Dow Jones Chief Executive Peter Kann and his wife, former Wall Street Journal publisher Karen House. Mr. von Holtzbrinck was appointed to Dow Jones's board in 2001, after Dow Jones and Holtzbrinck formed a joint venture in Europe between Handelsblatt and The Wall Street Journal Europe. Under the arrangement, Holtzbrinck's Handelsblatt Verlag unit received a 50% stake in The Wall Street Journal Europe and Dow Jones a 25% stake in the Handelsblatt unit.
Even after the arrangement was dissolved a few years later, Mr. von Holtzbrinck retained his seat on the Dow Jones board, a testament to his good relationship with Mr. Kann.
"Dieter von Holtzbrinck was a distinguished, principled publisher, a dedicated Dow Jones director and a good friend of Dow Jones and mine," said Mr. Kann.
Like the Bancrofts, Mr. von Holtzbrinck's family has watched the value of its assets decline amid a difficult business climate for newspapers and magazines. While Internet advertising has yet to make the same inroads in Germany that it has in the U.S., Holtzbrinck's flagship Handelsblatt faces a much more difficult competitive landscape than the Journal. In recent years, the newspaper has been forced to make deep cost cuts. Yet closely held Holtzbrinck has maintained its independence and the family has resisted the temptation to sell. Mr. von Holtzbrinck is known to have prized the independence of the company's journalism, a fact that may have contributed to his decision to abstain from a vote on the News Corp. deal and subsequently resign.
Separately, the SEC has notified Dow Jones director David Li, the chairman and chief executive of Bank of East Asia Ltd., that it plans to recommend filing civil charges against him. It is unclear exactly what the SEC case against Mr. Li is built on or what law they might charge him with violating. On Thursday morning, Mr. Li issued a statement defending his conduct. "I have broken no laws and deny the apparent allegations being made by the staff of the Commission. If the Commission does commence proceedings against me, I will defend myself vigorously," Mr. Li wrote in his first public comments on the matter since May.
In addition to The Wall Street Journal and its international and online editions, Dow Jones publishes Barron's and SmartMoney magazines and other periodicals, Dow Jones Newswires, MarketWatch, Dow Jones Indexes, and the Ottaway group of community newspapers.
