The New York Times
War at the Wall Street Journal: Inside the Struggle to Control an American Business Empireby Sarah Ellison
A tale about big business, an imploding dynasty, a mogul at war, and a deal that epitomized an era of change
While working at the Wall Street Journal, Sarah Ellison won praise for covering the $5 billion acquisition that transformed the pride of Dow Jones and the estimable but eccentric Bancroft family into the jewel of Rupert Murdoch’s/i>/b>
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A tale about big business, an imploding dynasty, a mogul at war, and a deal that epitomized an era of change
While working at the Wall Street Journal, Sarah Ellison won praise for covering the $5 billion acquisition that transformed the pride of Dow Jones and the estimable but eccentric Bancroft family into the jewel of Rupert Murdoch’s kingdom. Here she expands that story, using her knowledge of the paper and its people to go deep inside the landmark transaction, as no outsider has or can, and also far beyond it, into the rocky transition when Murdoch’s crew tussled with old Journal hands and geared up for battle with the New York Times. With access to all the players, Ellison moves from newsrooms to estates and shows Murdoch, finally, for who he is—maneuvering, firing, undoing all that the Bancrofts had protected. Her superlative account transforms news of the deal into a timeless chronicle of American life and power.
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Dow Jones seemed destined for Rupert Murdoch long before the official dealing had begun. For decades, Murdoch had coveted the Wall Street Journal. His children couldn't remember a time when he wasn't talking about it. His most trusted colleagues called it a “preoccupation” for him (even more than the Financial Times, which he had tried and failed to buy, or the New York Times, which he also eyed). He was open about his admiration, and among Wall Street's bankers, brokering a deal between the Bancroft family and a deep-pocketed media mogul such as Murdoch was a tantalizing opportunity.
So in the summer of 2002 when James Bainbridge Lee Jr. stood in his dark-wood-paneled office on the executive eighth floor of JPMorgan Chase & Company's midtown Manhattan headquarters, he prepared carefully for his upcoming call. He was contemplating how to break into one of the most difficult-to-crack media families in the country, the Bancrofts of Dow Jones & Company and the Journal.
As Jimmy checked the market movements and news on the five computer screens on his desk, his image stared back at him from the framed Forbes cover on his bookshelf. Under the headline “The New Power on Wall Street,” the photo displayed a slightly younger version of the Wall Street banker in his cufflinks and suspenders, his graying hair slicked back and curling slightly below the ears. The piece invited readers to “Meet the New Michael Milken.” Jimmy, as he was known on Wall Street, could have served as the model for “investment banker” if the Museum of Natural History mounted a diorama of the species, but his thoughts that day were not on his appearance.
Jimmy had made his reputation more than a decade earlier as a young banker making big loans to clients who wanted to make even bigger deals. His Rolodex was the source of his power, and he used it. He was sometimes derided as a glorified matchmaker. Every day, he started a new page on his yellow legal pad, jotting down in his all-caps scrawl a list of names to contact. By evening, after his usual frenetic day of jokes and ingratiating storytelling, the names were crossed off with his thin royal blue marker.
That midsummer day in 2002, he had already scribbled through one page and had moved on to the next when he dialed Richard F. Zannino's number. Zannino had just been named the chief operating officer at Dow Jones & Company, an elevation that put him a single step away from the spot where Jimmy wanted him for the match he had in mind. Dow Jones, while a storied media firm, seemed increasingly small and outpaced alongside entertainment conglomerates such as Viacom Inc., Time Warner Inc., and News Corp. Even pure news outlets such as Bloomberg LP and Reuters PLC now dwarfed the parent of the Wall Street Journal, which had been struggling since the implosion of the Internet bubble in the spring of 2000 had dried up much technology and financial advertising. The Journal was in the process of losing more than $300 million in advertising revenue, and the paper would spend the next three years losing money. The company's stock had peaked near $78 a share in the summer of 2000. Currently it was trading in the low $40s.
That Zannino would pick up the phone at all to chat with a banker like Jimmy represented a change at Dow Jones. Zannino's boss, Dow Jones CEO Peter Kann, would never have thought to befriend someone like Jimmy, much less talk on the phone with him on a summer afternoon. For Kann, even speaking to a rogue banker about company strategy was a step outside the bounds of Bancroft-approved isolationism. Kann, who often spoke slowly, his hand rubbing the top of his balding head, which pitched ever so slightly forward when he addressed a group, had served as the company's CEO since 1991 and was a Wall Street Journal journalist who had risen through the ranks. At another publication, the ascent would seem unusual. But at Dow Jones, the best journalists wound up running the company, and so it had been with Kann. He was awkward in front of crowds; his presence was unassuming until he started to write. Then his prose enchanted, something his performance as an executive had never managed to do. More than any living Bancroft, Peter Kann embodied the understated spirit of Dow Jones. He once wrote in a letter to Journal readers: “We believe facts are facts and that they are ascertainable through honest, open-minded and diligent reporting. We thus believe that truth is attainable by laying fact upon fact, much like the construction of a cathedral. News, in short, is not merely a matter of views. And truth is not merely in the eye of the beholder.” As CEO, he had assembled a management team of polite Ivy League executives. He had also promoted his wife, Karen Elliott House, to publisher of the Journal. Her proud Texan twang announced her as a standout in the otherwise meek crowd. The journalists called him “Uncle Peter,” sometimes affectionately, sometimes with derision.
Kann knew Dow Jones only as a Bancroft-owned institution. He had grown close to the elders in the family and often praised their support of Dow Jones and the Journal. He fostered the notion that Dow Jones was a “quasi-public trust”-as was once stated in the company's proxy-and that the family was a worthy defender of one of the finest journalistic institutions in the country. He believed fervently that family ownership at Dow Jones was what gave the institution the independence to pursue its stellar brand of journalism. The best papers in the country-the Washington Post, the New York Times, and the Journal-were all owned by old families with a legacy to protect. During his tenure, he had assiduously established the relationships he needed to keep the company independent.
Kann's tenure as CEO was marred by serious management missteps, capital misallocations, and a foundering stock price, but he waved off critiques of these problems. He had managed something far greater in his mind: the journalistic integrity of the Wall Street Journal. And even though he didn't think they were the brightest bunch, he had the Bancroft family to thank for that.
Zannino didn't blend in at the company, where he'd arrived from the rag trade, the son of an Italian Catholic longshoreman who took occasional work at the local bar in Everett, Massachusetts, and an Irish Catholic stay-at-home mom. Married right out of Bentley College, where sometimes it seemed he'd majored in financial aid, he started a family, worked two jobs, and slaved at night for an MBA. At forty-three, he still hadn't shaken Boston's rougher precincts from his voice. Though comfortable at Dow Jones, he had never taken on the company-wide aversion to selling the place. One of his big critiques of the Journal, which he kept mostly to himself, was that it lacked positive stories about successful CEOs and their companies. He was a businessman. Take it or leave it.
Jimmy and Zannino had worked together before. When Jimmy was an investment banker at Chemical Bank, Zannino was chief financial officer of Saks Fifth Avenue and later Liz Claiborne. They became Connecticut neighbors when Zannino moved to Greenwich (Jimmy lived in nearby Darien), home to hedge fund managers, CEOs, and their bankers. There he coexisted peacefully with all the other executives, and his son, Joey Zannino, played on the same ice hockey team as Jimmy's son, Jamie Lee-the Brunswick Bruins. As parents often do, Zannino and Jimmy chatted at games and bonded over their kids.
Zannino, with thick dark hair and square-jawed good looks, carried himself with sporty, casual ease. He had often talked to Jimmy about how he couldn't do big enough deals. Dow Jones was small and shackled to the Journal, which howled at the tiniest budget cut that diminished its reporting resources or staff. “I can't roll the dice,” he told Jimmy. Zannino, with his Pace MBA and blue-collar bite, was greeted with some suspicion by the Ivy Leaguers of Dow Jones. But, despite their frosty attitudes, these naysayers hoped that he would be able to figure out what to do about the company's dire business prospects.
In the year before Jimmy's call to Zannino, the Journal had been tested. The terrorist attacks of September 11, 2001, had decimated the company's headquarters. As the World Trade Center towers fell, the impact shattered the windows of Dow Jones, blowing heavy debris across desks, blanketing the Journal newsroom with white ash. The Journal's long-serving managing editor, Paul Steiger, led reporters and editors across the river to Dow Jones's offices in New Jersey, where a skeleton staff produced a paper that appeared-remarkably-on doorsteps the morning of September 12, complete with a harrowing eyewitness account of the towers' fall. The paper won the Pulitzer Prize for breaking news for its coverage of that day, which was, the Pulitzer committee said, “executed under the most difficult circumstances.” It was a defining moment for the paper. As if the decimated offices weren't enough, just months after the attacks talented feature writer Daniel Pearl, South Asia bureau chief, was abducted and brutally murdered while investigating Al Qaeda links to the “shoe bomber,” Richard Reid.
The Journal and Dow Jones felt under siege. In a normally skeptical newsroom, there was suddenly shared purpose with everyone from the Bancrofts to Peter Kann. All rallied to support the institution, and Steiger, already beloved, became something of a saint. The Dow Jones “family,” as Kann called it, drew together. The newsroom, always aware of its status as belonging to one of a chosen few elite papers in the country, was newly devoted to its mission and the family who allowed them to pursue their craft without the meddling of a more business-minded corporate parent. But such sentiment couldn't beat back the business pressures plaguing the company. The steep drop in advertising revenue that plagued the Journal following September 11 was dragging down the entire newspaper industry.
Zannino arrived at Dow Jones in February 2001 as chief financial officer. Seventeen months later, he was on the phone with Jimmy Lee, who loved to chide his pal. “You're too small,” he would say about Dow Jones. “You can't take a gamble.” But it was all just fun: Jimmy knew he was dealing with a guy who understood the world as he did, through stock prices, profits, and fees. Zannino, he knew, wanted to make his company a place where good journalists practiced journalism and good businesspeople took care of the business. Jimmy thought, “Maybe this is the guy who provides the bridge. And I know someone who can cross it.” The person he was thinking of? Rupert Murdoch. Of course.
As Jimmy stood in his office on that morning in July 2002, pen poised, waiting for Zannino to pick up the phone, he thought, “I can deliver this.” After congratulating Zannino on his new appointment as chief operating officer, which had been announced earlier that month, and making the requisite small talk, Jimmy launched into the purpose of the call.
“So, isn't it time for you guys to do a deal?” Jimmy asked.
“The Bancroft family holds all the cards,” Zannino replied, in what would become a standard refrain.
Jimmy took his pen and wrote down his notes from the conver¬sation.
The words stared back at Jimmy, their bright blue lettering discouraging and predictable: “bancroft family holds all cards.”
The Bancrofts controlled 64 percent of Dow Jones through a class of super-voting stock that gave them ten votes per share on any issue that came before shareholders, namely, takeovers. Jimmy knew this; it was stated plainly in the company's public filings. But that protected stance was something Jimmy viewed as his job-his duty-to circumvent. He wanted Zannino's help.
“Well, how do I get to them?” Jimmy asked. “I guess it's like anybody else, you've got to make a compelling pitch with some value to get their attention.”
“Sure,” Zannino said. “Make a compelling pitch. Value always gets people's attention.”
“Should I call Peter?” Jimmy asked.
“If you call Peter-” Zannino paused. “I mean, nobody has put a number to them, so it's easy to say it's not for sale.”
It was true. The family's stance remained untested. They had been carefully shielded, it seemed. Later, some in the family would describe what they termed the “unholy alliance” between Peter Kann and Bancroft trustee and Hemenway & Barnes lawyer Roy ¬Hammer.
Hemenway & Barnes, one of the oldest law firms in Boston and a specialist in managing the city's old, private money, relied heavily on the Bancroft account, which was its main source of business. The firm's relationship with the family dated back to World War II, when “Grandpa” Barron's daughter Jane, left alone after her husband's suicide-he was a depressive who some in the family say was driven mad by his father-in-law's abuses-hired the firm to protect the family fortune. Since then, the thirty-lawyer practice-with the motto “A Wealth of Experience”-had grown in power within the family with each successive generation. As family trustees died, Hemenway lawyers typically replaced them. The trusts paid Hemenway 6 percent of any income generated, which meant that the generous dividends from Dow Jones's stock produced a reliable stream of money for the law firm-all for keeping things exactly as they were.
Hammer had sold some of the family's stock and bought other investments, an effort to diversify their wealth. Now, Dow Jones stock made up less than half of their assets. But the company was still the greatest single asset the family held in common, and the structure of the trusts automatically divided the generations. Jessie's, Jane's, and Hugh Jr.'s children, known as the “upper generation,” received automatic disbursements from the trusts, which came mainly in the form of annual dividends from Dow Jones's stock. They decided how much cash their children received. Mostly, however, the kids could get to the fortune only after their parents' death.
For years, Kann and Hammer successfully rebuffed overtures from interested suitors in an effort to protect the Wall Street Journal and their position in the constellation of players who derived both prestige and a sense of self-satisfaction that came from proximity to such a national treasure. Anyone who talked to Kann would hear the same response: that the family was not interested in selling. If he needed confirmation, Kann would call Hammer, an imperious man with an aristocratic air, who repeatedly assured Kann the family hadn't changed its mind. Hammer turned down expressions of interest and informed Kann afterward.
MAKE COMPELLING PITCH. VALUE TO GET ATTENTION
CALL PETER-NOBODY HAS PUT A NUMBER TO THEM-EASY TO SAY IT'S NOT FOR SALE
“You'd need to talk to a board member who gets it,” Zannino said. “If you go to Peter, he doesn't even report to the board until after the fact,” Zannino added. “Go to Roy with a number.”
Jimmy's pen busily noted the instructions:
2. BOARD MEMBER WHO GETS IT
3. GO TO PETER-DOESN'T EVEN REPORT
4. GO TO ROY WITH #.
Jimmy had studied Dow Jones for years, but now he had an insider. Zannino had just handed Jimmy a playbook for how to scale the seemingly impenetrable wall that surrounded Dow Jones.
Jimmy continued to press Zannino about the best way to approach the company. Zannino knew enough of the directors to provide some insight into the dynamics on the board.
Jimmy started a new page on his notepad.
Jimmy had to understand, Zannino explained, the family thinks they are protecting the Journal by keeping Dow Jones independent. Despite the failing stock price, some in the family thought selling a single share in the company was an act of disloyalty. “That's what they believe and that's what Peter believes,” he said. They would sell only if they could have some kind of assurance that the company would remain at least partly independent.
FAMILY WANTS ASSURANCE-COMPANY STAYS INDEPENDENT.
“It's like somebody making an offer for your store; you still want to be able to manage it,” Zannino offered. “They care about the independence of the Journal.”
OFFER FOR YOUR STORE-INDEPENDENCE OF THE JOURNAL
Jimmy understood all that, and it sounded like the typical noises of a family business before it sold. The Bancrofts, he perceived, all wanted assurances and to be dragged across the finish line. What he needed to know was how to make the approach.
“Who else is on the board?” Jimmy wanted to know. “Who might 'get it'?”
Zannino mentioned four board members. Three of them had been nominated in 1997 to bring some outside voices to an insular board: former American Express chief Harvey Golub, former Bankers Trust chairman Frank Newman, and former Pfizer CEO Bill Steere. Former Hallmark CEO Irv Hockaday was a long-serving board member and the company's lead director. Of those four, Harvey, Irv, and Frank were the closest to Peter Kann.
HARVEY NEWMAN HOCKADAY STEERE
OF THEM, HARVEY, IRV & FRANK
After the two hung up, Jimmy filed his notes away in a thin red folder marked “dow jones.” He called Rupert Murdoch to update him on the conversation. He told Murdoch, again, that Zannino understood the company's strategic dilemma. There were many hurdles yet to clear, but Jimmy sensed, as he put down the phone that day, this time it really could happen.
Peter Kann's love of journalism began early. At age nine, he started publishing the “Jefferson Road Snooper” (with the help of his mother) in his leafy Princeton, New Jersey, neighborhood. In high school, he worked for his local paper, the Princeton Packet, owned by Barney Kilgore, who transformed the Journal from a narrow investment daily to the nation's business paper. At Harvard, Kann reported for the Crimson. After college, he was hired by the Journal as a reporter in the Pittsburgh bureau in 1964.
Glynn Mapes, who started at the Journal a year before Peter Kann, remembered the young reporter: “He was a really nice guy who didn't give a damn about business stories. The word was he never wrote one, and he never wore a wristwatch. He also rarely had a word changed by any of his editors.” From San Francisco, Kann quickly moved to Los Angeles and then abroad to Asia, where, at twenty-four, he became the paper's first resident reporter in Vietnam. (One of his stories told of a nine-nostriled water snake that South Vietnamese villagers feared more than the Vietcong.) By the early seventies, when he won a Pulitzer for his coverage of the 1971 India-Pakistan war, Kann had become something of a romantic figure. For ten years he lived in an antique-filled apartment halfway up Victoria Peak in Hong Kong. He owned a motorized junk and hosted what became legendary poker games.
Kann's worried mother, if she hadn't heard from him for several weeks, would call the paper's Page One editor, Michael Gartner (later of NBC News), to check on her son's whereabouts. The first time she contacted him, Gartner heard her heavy Austrian accent-she and her husband were refugees of Jewish descent who arrived in the United States during World War II-and answered her question truthfully: he hadn't heard from Kann in weeks. This news upset her greatly, and so the next time Gartner stretched the truth. “I just out-and-out lied to her,” he remembered. “I'd say, 'Oh, yes, I just talked to him yesterday.' Or this morning. And she'd say, 'Where is he?' And I'd say, 'He's in a hotel room somewhere.' And then I'd send him a wire: Peter, call your mother.”
In 1974, the Journal hired Karen Elliott, a tall, outspoken blonde reporter from the Texas panhandle, to work in its DC bureau. She worked her way up through the ranks of the Journal with the same intelligence and grit she had developed in the tiny town of Matador, Texas, from her churchgoing parents, who forbade a television or phone in the house and didn't allow her to date. In 1975 she married Art House, a Connecticut-bred power broker in Washington who later served as staff director to Senator Robert Byrd. In 1978 she became the paper's diplomatic correspondent.
It was around this time that Kann revealed his surprising interest in more managerial pursuits. After charming the company's CEO, Warren Phillips, Kann won the task of starting up the Asian Journal in 1976. To do it, he conscripted the paper's Tokyo bureau chief, Norman Pearlstine, who would become a close friend. Back then, the business and news sides of the company were divided by almost religious writ. In the Journal's San Francisco bureau, sales executives and reporters played handball together outside the office, but when Monday morning came around, the salesmen were forbidden to step inside the paper's newsroom. In New York, the advertising staff was similarly banned from physically entering the reporters' sphere.
“Peter was the most talented storyteller and writer I've ever met, and I never understood why with that much raw talent would he not want to continue writing,” says Pearlstine. “He had the gift, so why didn't he want to be a better Halberstam, or a better Talese? I'm not saying he didn't have to sweat his stories, but I saw that gift as almost supernatural.”
By 1980 Kann was the associate publisher of the Journal in the United States and widely recognized as the company's likely next CEO of Dow Jones. He and Karen House met at a party in Washington in 1981. They were both still married but separated from their spouses. House was dating a Washington, DC-based television anchor named Charlie Rose at the time. Her relationship with Kann became common knowledge by 1982 among some in the Journal's New York bureau. After telling the paper's executive editor, Fred Taylor, that he and House were together, Kann added that since House didn't report to him, he didn't think it would pose a problem.
Kann's first wife died in July 1983. House and her first husband were divorced in August. Word of their relationship officially emerged when Kann joined House, then the Journal's assistant foreign editor, on a trip to the Middle East in 1984, where she was following Jordan's King Hussein. She had just filed a series of stories on him to Page One and called then-Page One editor Glynn Mapes to complain about his editing. The conversation became heated, and soon House and Mapes were shouting at each other.
“Your stuff reads like a book jacket,” Mapes yelled as his editors listened, engrossed. (The lead-in to her first piece was a series of quotes strung together without transition.) And then, after a pause, “Oh, hi, Peter,” Mapes said.
Always the conciliator, Kann had picked up the phone. He told Mapes, “You two should cool on this for a while and you can get back together when tempers have mellowed.” The series ran days later on the front page of the paper as the gossip surged.
Thanks to the call, what had been insider knowledge among those in New York quickly spread through the newsroom and out to the bureaus. Kann and House married shortly after she won the Pulitzer for her series in the spring of 1984. That same year, House became the Journal's foreign editor. But by the time Kann was named publisher in 1989, House's temper and forthrightness had created enemies throughout Dow Jones's empire. Kann's promotion to CEO of Dow Jones in 1991 left many House haters cringing.
As Kann and House soared, the company declined. While competitors such as Bloomberg, Reuters, and Time Inc. kept growing, Dow Jones struggled to expand beyond its core businesses, the Journal and Dow Jones Newswires. A piecemeal purchase of financial data provider Telerate-totaling $1.6 billion-was beginning to fall apart. That same year, just after Kann took the helm, Dow Jones bungled an opportunity to acquire Financial News Network, a business cable channel later picked up by General Electric Company and merged with its existing business channel, CNBC.
Gun-shy from such failures, Dow Jones's management and board of directors became increasingly risk averse. As the company's profits diminished, an increasing proportion of them went to dividend payments largely destined for the Bancrofts.
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Meet the Author
Sarah Ellison, a former reporter for the Wall Street Journal, led the paper's coverage of Rupert Murdoch's bid for Dow Jones.
Judith Brackley has worked in major market radio for twenty years and has numerous radio spots, industrial voice-overs, and narrations to her credit.
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