With a few heirs of the founding family in revolt and fund manager Michael Price on his case, Dow Jones & Co. Chairman Peter Kann spent most of Wednesday’s annual meeting listening to critics lambaste his $650 million plan for rehabilitating the firm’s ailing Telerate unit.
But the onetime war correspondent for the Wall Street Journal stuck to his guns.
“This company has never been managed merely for short-term profit,” he said in defending the plan. “We’re focused on building a stronger and more profitable Dow Jones that will create even greater returns for the shareholders.”
That boilerplate response failed to still the critics, but they didn’t have the votes to turn the tide at Wednesday’s meeting. Stockholders dutifully elected four new members to the board of directors, including Leslie Hill, an American Airlines pilot who is descended from the Bancroft family, which holds a controlling interest in Dow Jones.
Hill, like the other new directors, so far backs Kann’s plan for Telerate, now called Dow Jones Markets.
Several other Bancroft family members have criticized the plan, but none spoke at the meeting. But other shareholders took to the floor one after the other to denounce management’s plan for the unit, purchased in 1990 for $1.5 billion. Telerate, like Reuters Holdings PLC and Bloomberg News, delivers up-to-the-second financial data to traders’ desktops.
Telerate in recent years has been badly outflanked by its rivals in both accessibility and the usefulness of its information. Analysts fear bringing the unit up to speed in the fast-changing financial information marketplace will cost billions of dollars, not the hundreds of millions earmarked by management.
Analysts specializing in media stocks would rather see Dow Jones stick to publishing the Wall Street Journal, the flagship of the organization, the Dow Jones wires and its proven personal finance new ventures like Smart Money magazine and the Wall Street Journal on-line, which is one of Internet publishing’s most successful startups with nearly 100,000 paying subscribers.
“No one, no large independent shareholder, no buy- or sell-side analyst, and no journalist even among your own ranks, thinks this spending plan (for Dow Jones Markets) is a responsible use of shareholder money,” said James Cramer, who helped launch Smart Money and now owns a million shares of the company’s stock, which closed yesterday at $39.12, down 50 cents a share.
“This doomed spending plan is all that stands between the Wall Street Journal’s continued independence and its takeover at a price far below where the stock currently stands,” Cramer said.
Perhaps the most troubling threat came from Franklin Mutual Advisers Inc. of Short Hills, N.J., an aggressive investment fund headed by Michael Price. Franklin Mutual purchased 4 million shares of stock in early February.
Price was the subject of a recent cover story in Fortune Magazine, whose managing editor is John Huey, a former Journal reporter. A few weeks later, Fortune broke the story that several Bancroft descendants were upset with Dow Jones’ stock performance.
Price, known for taking large positions in troubled firms in order to push their managements in new strategic directions, apparently went after Dow Jones after the second article appeared.
Price didn’t attend the meeting, but an associate, Thomas Price (no relation) did. “I spoke with Michael yesterday and he said, I’m not going away,” Price said. “He also said when the stock comes down, as it probably will, he plans on buying more.”
While for most Americans the name Dow Jones is synonymous with the stock market, the company that compiles and publishes the trademark index has in recent years actually been one of the publishing industry’s poorer market performers.
One stockholder pointed out Wednesday that a decade ago, both Reuters and Dow Jones had total market capitalizations (the stock price multiplied by the number of shares outstanding) of $3.5 billion. Today, Reuters’ market capitalization stands at $20 billion while Dow Jones languishes at $3.5 billion.
A securities analyst in the audience complained that Dow Jones’ return on equity over the decade has slumped from 24 percent to under 12 percent.
While Kann defended his plans for its Markets unit, he admitted the company had failed to grasp the changes in the industry during the 1990s. For instance, it still uses page-based tables on its screens rather than informative graphics. It also doesn’t provide the historical data provided by its rivals.
Perhaps most critically, the company failed to diversify from its traditional customers, who worked in the sell-side trading rooms of investment banking houses where they pushed stocks and bonds. As a result, the unit completely missed out on the exploding demand for desktop financial information from the buy side: the mutual fund managers, account executives and individual traders who’ve dominated 1990s markets.
Last week, Dow Jones formed an alliance with Microsoft that it hopes will rectify the Markets division’s technological problems. Kann said Microsoft will be creating an Internet-based open architecture that will make its financial information accessible to personal computers–unlike the proprietary terminals used by its rivals.
But analysts remain skeptical. “Content and analytics are critical to market success and they have a tremendous amount of catching up to do,” said Mike Ellmann, an analyst with Schroder Wertheim & Co.
