The Denver Bancrofts Play the Ultimatum Game

There's a famous experiment in experimental economics called the Ultimatum Game:

The ultimatum game is an experimental economics game in which two parties interact anonymously and only once, so reciprocation is not an issue. The first player proposes how to divide a sum of money with the second party. If the second player rejects this division, neither gets anything. If the second accepts, the first gets his demand and the second gets the rest.

Economists love this game, because it shows that people don't always take what's best for them. If the proposed division is too lopsided, the chooser generally decides to veto the whole thing, and lose his small payment entirely, rather than agree to something very unfair.

A variant on the Ultimatum Game is now being played between the Denver branch of the Bancroft family, on the one side, and the board of Dow Jones, on the other. The Denver Bancrofts want to get more than $60 per share for their voting Dow Jones stock, while keeping the holders of non-voting shares at the $60 level. Reports the WSJ's Matthew Karnitschnig:

The Denver trust has argued that the super-voting B class shareholders should receive a premium of 10-20% over the $60 offer. In their view, News Corp. Chairman Rupert Murdoch should be willing to pay an extra $120 million to $240 million -- the cost of paying more to B shareholders -- to clinch the $5 billion deal. The Bancroft family owns about 83% of the roughly 20 million B shares.
Dow Jones's board, though, has indicated it wouldn't recommend to shareholders a deal that treated B class shareholders differently to the other shareholders. Yet the Denver trustees have argued that if the board was previously willing to recommend $60 a share on behalf of the common shareholders, it should continue to endorse that bid even if the B class shareholders are getting a higher price.
A person close to News Corp. has said that the company wouldn't be willing to offer a two tiered deal.

Essentially, the Denver Bancrofts are offering a take-it-or-leave-it ultimatum to the Dow Jones board. Either recommend an unfair distribution of Murdoch money, they're saying, or else we'll scupper the whole deal and none of us will get anything.

This is very, very dangerous brinkmaship on the part of the Denver Bancrofts. Murdoch feels, with some justification, that he's already paying a premium over his initial $60 bid – a premium in terms of the amount of hoops that the board and the family are making him jump through, and a premium in terms of loss of control over who edits and publishes the Wall Street Journal. When the Bancrofts told him that it wasn't about the money, it was about editorial independence, he took them at their word. So he's unlikely to receive the news that the Denver Bancrofts want more than $60 with equanimity.

Meanwhile, the arbitrageurs are bidding down Dow Jones stock, which is now trading at just $52.80 – its lowest level since the Murdoch bid was revealed. They never really believed that this deal would fall apart over something like editorial independence. But they clearly believe it might well fall apart over something as base as sheer greed.

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