Dow Jones will be forced to pay a break fee of $165 million (£81 million) in the event that the agreed merger between the owner of The Wall Street Journaland News Corporation is scuppered, according to regulatory filings.

The break fee was disclosed after the two media companies ended three months of bid wranglings with a takeover agreement that will see The Wall Street Journal change hands for the first time since 1902.

Under the terms of the agreed deal, News Corporation, parent company of The Times, will pay Dow Jones shareholders $60 cash for every share held, representing a 67 per cent premium to the value of the shares before the approach was made public on May 1.

News Corp has also offered a limited alternative where up to 10 per cent of Dow Jones shareholders can opt to take shares in a newly formed subsidiary of News Corp called Newco. Those shares can be exchanged for News Corp nonvoting shares. The arrangement is structured in that way for tax purposes.

BACKGROUND

• Tensions rise in Bancroft family

• News Corp on brink of Dow Jones success

• Dow Jones director Li faces SEC legal action

• Dow Jones board to vote on News Corp offer

• Dow Jones steps up search for alternative buyer

Family fortunes no survival guarantee

Journalists like to think that newspapers are like football clubs: the less profit, the better the team

Related Internet Links

• News Corporation company information

• Dow Jones company information

Related Links

• Bancroft family statement

• The Wall Street Journal reports on changing times

• The guardians of integrity

The agreed deal, which values Dow Jones at about $5.6 billion including debt, will be financed entirely from existing News Corp funds. No new fundraising is required.

The backing of the Dow Jones board to approve the deal comes after the controlling Bancroft family committed about 37 per cent of the voting shares of the company in favour of a takeover. Combined with the estimated 29 per cent of voting shares held by institutional investors, who are believed to be broadly in favour of a deal, News Corp is expecting that the deal will be carried by a significant majority. The agreed offer will now go to a full shareholder vote.

In a statement issued late on Tuesday, Peter McPherson, chairman of Dow Jones, said: “. . . the board has overwhelmingly voted to approve the definitive merger agreement. This decision has been difficult and emotional for a great many people because of the long history of this great institution.”

News Corp initially approached the Dow Jones board at the end of April, when the Bancroft family immediately opposed the offer but later agreed to reconsider.

There are about 35 adult members of the Bancroft family who had the right to vote on a change of ownership of the company. They had been split over whether to accept an offer from News Corp. Some were concerned about the editorial independence of The Wall Street Journal in the event that News Corp took control of its owner. Others had also hoped to be able to extract a higher price. Last month Rupert Murdoch offered to create an autonomous editorial board, reflecting a similar structure at The Times, in which the editor of the title “shall not be appointed or dismissed without the approval of the majority of the independent directors”.

Christopher Bancroft, who represents about a sixth of Dow Jones voting shares, had sought to block a News Corp offer by talking to cash-rich hedge funds and private equity groups to boost his stake in the company and veto any deal. But the Dow Jones board became frustrated with delays arising from meetings between opposing factions of the Bancroft family and as a result the family allowed the board to lead bid negotiations with News Corp on their behalf.

By Sunday evening, Bancrofts representing 28 per cent of Dow Jones votes had committed to a takeover while other members of the Bancroft family were haggling with their advisers. By Tuesday it emerged that about 37 per cent of the family had voted in favour.

Part of the last-minute talks with the family resulted in Dow Jones agreeing to set up a fund that would cover the cost of the advisory fees incurred by the Bancroft family. It is estimated that those fees have reached about $30 million.

News Corp, having carried out basic due diligence on Dow Jones for its initial offer, is now understood to be scrutinising all Dow Jones assets to ascertain how the two groups will fit together.

Dow Jones is made up of three businesses – a consumer media arm that controls The Wall Street Journal newspaper and Barron’s weekly financial magazine; an enterprise arm that manages Dow Jones news wires and factiva, the data archive operation; and a local newspapers arm that has 22 papers across the United States.

In order to address concerns that the editorial independence of Dow Jones may be compromised, News Corp announced members of a special five-member committee, including Louis Boccardi, former chief executive of the Associated Press and former chairman of the Pulitzer Prize Board. In a statement, both groups agreed that one “mutually acceptable person”, possibly from the Bancroft family, would be appointed to the News Corp board.

A number of senior executives at Dow Jones could receive sizeable severance pay once the deal is completed. One month after News Corp had approached Dow Jones, the company introduced a so-called change in control clause for about 100 executives. It is estimated that should Richard Zannino, chief executive of Dow Jones, leave or have his role altered after the sale, he would be eligible for a payout worth about $19 million.

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