Rupert put on a pretty good AGM last week and took plenty of questions from Crikey and others we’d help get onto the floor of the meeting.

Crikey was in the thick of it at the AGM and the key tactic was opening up new flanks with a variety of different speakers. Last year I handed out suggested questions to about 50 shareholders and none of them got up and spoke. This year, I didn’t hand out any questions accept to the bloke who happened to sit next me – retired Mitsubishi executive Mike Stacey – who was more than willing to have a go.

PATHETIC DIVIDEND PAYOUTS

Mike bristled when he read the suggested questions on Rupert’s pathetic 1.5c half yearly dividend so he agreed to open proceedings with the question on this point.

When he suggested Rupert’s shareholdings were pre-1985 and therefore free of capital gains tax the great man interjected with “I wish” so we’d be interested to hear from a tax expert to clear this one up.

This was the question: “The company has been paying a paulty 3c a year in dividends for as long as I can remember. Why can’t we be like conventional companies and pay a consistent proportion of profit as dividends rather than a fixed amount which is less than only about 15 per cent of average profits over the past 5 years. I know that capital gains on your shares are probably tax free so you prefer share appreciation to dividend flow but the shareholders who own the other 82 per cent of the shares would probably like a bigger dividend. Any chance that could happen?”

Rupert said in response: “In these uncertain times, we are leaning heavily to a policy of retaining our cash reserves at the safest possible level, so I wouldn’t want to encourage any immediate expectations of an increase in dividend.”

He also reminded everyone that News Corp had delivered cumulative capital growth of 25 per cent a year for 30 years which was unparalleled with the exception of “one or two” other Australian stocks.

The truth be known, only Frank Lowy’s Westfield Holdings has performed better and how ironic was it that the showbag for News Corp shareholders included the Harper Collins biography of Frank by Fin Review journalist Jill Margo.

If Rupert is so keen to conserve cash, it beats me why he keeps doing these cash-draining share buybacks. May as well pay some of that cash back to shareholders in dividends but this wouldn’t suit Rupert’s tax position so he doesn’t do it.

CRIKEY OPENS WITH THE DEBT QUESTION

I got up next and first asked Rupert to clarify when he wanted general questions on the business because he was trying his usual trick of sprinting through the formal business and then delivering his chairman’s address at the end once he’d closed down formalities.

Most normal chairman open with an address that shareholders can then respond to but Rupert does his best to avoid scrutiny.

Unlike the previous two years, Rupert said that all questions should be asked on the resolution dealing with the accounts so I opened up with a question on the company’s debt levels, which hit a record high of $18.8 billion as at June 30.

The question went along these lines: “Total company debt is at a record high of $18.8 billion as at June 30 although this is easily covered by $84.9 billion in assets and we have also reduced debt by about $5 billion with the just-completed sale of Fox Family to Disney. We’ve seen total debt rise in each of the past 5 years. What is our target level of debt and is this trend likely to continue. Also, what is the breakdown between bank debt and bond debt because it was the banks that caused all the trouble during the liquidity crisis that coincided with the Gulf War in 1990 when our total debts were only about $10 billion.”

Rupert opened with a correction pointing out that the Fox Family sale only reduced debt by $3 billion and then said that the weak Australian dollar exaggerated the debt figure and he preferred looking at the lower figure of net debt. But his hatred of banks after the 1990 debt crisis remains strong as he was keen to stress that “we have no bank debt at all and our average maturity date on our debt is now well past 10 years, more like 20 years.”

He also claimed that the company strived to retain its investment grade credit rating but as Geoff Transom pointed out on Investorweb: “Their debt is rated in the “high yield” (otherwise known as “high default risk” or “junk” end of the credit spectrum).”

FALONG GONG AND RAPPERS

At this point the two metre tall Falong Gong spokesman John Deller stood up and asked if this was an appropriate time to comment on James Murdoch’s re-election.

I’d encouraged John to come across from Sydney for the meeting and arranged his proxy. We met for coffee before the meeting and talked tactics. Rupert politely told him it was the wrong time to discuss this so he sat down and Melbourne-based black rapper Dwayne Armstrong, resplendent in a bright red top, put his hand up and took the microphone.

Dwayne had a two verse rap to perform and had 5 people in the room secretly filming. John Safran came up with the words which revolved around the theme “You call that a dividend, I call that a dis.”

Unfortunately, Dwayne was not a shareholder so Rupert instantly responded after the first verse with words to the effect of “seeing as you’re not a shareholder the dividend should not be a concern for you”.

There was a few laughs while Dwayne performed with his mate standing behind him providing support and Lachlan Murdoch was smiling away. Despite not getting the second verse out it won’t matter because they’ve got enough footage to play the audio of the whole song in John Safran’s Music Jamboree on SBS next year.

POSITIVE QUESTION ON FOX NEWS

I then threw in the most positive question for the day about Fox News. It went as follows:

“Fox News has been an unqualified success which must be very satisfying given that CNN founder Ted Turner said he was going to “squash us like a bug” when it was launched 5 years ago. How much profit did it make last year and how much have we invested in the business over 5 years? Could it ever become as valuable as Fox Family and how much profit are we hoping to make from it this year?”

Rupert lamented the fact that September 11 has blown out the costs at Fox News and said the profits last year and this year will not be much but he was very happy to point out that Mr Turner has now lost his job. He also predicted Fox News could become worth more than Fox Family ($10bn) which would be great because News Corp owns 100 per cent. Advertising rates have been doubled of late and he also observed that whilst CNN was made by the Gulf War, Fox News was made by US Presidential election and both were benefiting from the latest war.

ANSETT DISASTER

Rupert was showing no serious signs of question fatigue at this point so I got up again and asked this one about Ansett:

“Ansett was in our books at $340m and we announced the sale of our 50 per cent to Air New Zealand for $580m in cash and an expected additional $100m in June 2002 based on 10% of Air New Zealand’s then market capitalisation. How did we account for the proceeds at the time and what prospect is there of recovering any of the additional proceeds now that the NZ government has bailed it out? Also, News Corp has been widely criticised for allegedly starving Ansett of capital and leaving it with the second oldest fleet of any airline in the world. Is this a fair criticism?”

This one actually generated some news because few people had cottoned onto this receivable in the News Corp accounts which was originally booked at $100 million. Rupert conceded it has since been written down to $65 million but now said the residual value would plunge to about $10 million. The idea of Rupert getting any more cash out of Air New Zealand is really quite appalling given the disaster he foisted on Air New Zealand.

He seemed genuine in lamenting the demise of Ansett but absolved himself of blame by saying that after taking management control, News Corp hired current British Airways CEO Rod Eddington, who he described as the finest airline executive in the world. Eddington made plenty of changes but then Rupert launched an extraordinary attack on Air New Zealand claiming that they wanted to expand the airline but the Kiwis blocked them all the way.

THE ONE.TEL WRITE-OFF

The retired Mitsubishi executive leapt into action next asking this next question about One.Tel in two parts:

“Note 5 of the accounts reveal a $576m write down of our 24 % stake in One.Tel. What lessons have we learnt from this and how much advertising revenue did we receive from One.Tel before it collapsed. What prospect is there of us having to return the $49m of pre-paid advertising from One.Tel that we still hold and the One.Tel administrator wants to pay out worker’s entitlements and unsecured creditors.”

Rupert was clearly ready for this one and launched a spirited attack on himself and defence of eldest son Lachlan Murdoch about all this “misinformation about One.Tel” and said point blank that “you have to blame me and nobody else”.

However he did point out that “more than 5 directors visited the company” and even conceded that he paid a personal visit to One.Tel’s main supplier Lucent Technologies, which told him One.Tel had the best reseller model in the world.

The problem with this is that One.Tel went broke trying not be a reseller as it was the decision to pay $523 million for 3G spectrum and then commit to building their own $1.1 billion network through Lucent that caused all the problems.

OWNING ALL THE SPORT

With just one shot left in the locker on general questions, I opted to leave the New York media and Col Allan question out and went for the following about Australian sport:

“How did our investment in 50% of the National Rugby League and ongoing underwriting of the competition perform in financial terms in 2000-01. What was the profit or loss? Does the $100m a year deal to buy the AFL TV rights reflect on the future of our commitment to the NRL. Can we really own the two rugbys and AFL and keep everyone happy and how our negotiations progressing with Telstra and PBL over the future of Foxtel.”

Rupert correctly observed that “there were several questions in that” and basically said they could accommodate the lot and that they were really just an “intermediary” for Nine, Ten an Foxtel with the $100 million a year AFL swoop.

Predictably, he said “we see no conflict between the NRL and AFL” and he appears to have stemmed the Super League red ink saying that the ARL had “no financial impact of any significance”.

RE-ELECTING DIRECTORS

It was pretty poor that News Corp has a 16-member board but only four turned up – Rupert and Lachlan and the two Australians, Ken Cowley and newcomer Graham Kraehe. I presumed Rupert would treat it as one resolution and take questions in one block but when Falun Gong spokesman John Deller asked if now was the time to deal with James Murdoch, Rupert again knocked him back and dealt with the 5 resolutions individually.

This was a good thing but I didn’t comment on Geoffrey Bible’s opening re-election even though he is the world’s biggest drug pusher as chairman of Philip Morris, the world’s biggest tobacco company. And Geoffrey has been in his native Australia for the past week yet still failed to make the trip to Adelaide.

The next cab off the rank was 66 year old Ken Cowley who I have long argued should be thrown off all boards and told the AGM he’d overseen the disastrous performance of PMP, was the executive most responsible for Super League, was chairman of Ansett for some of the dark years and also was closely involved in the $100 million loss suffered by the investors in Qantas New Zealand.

“By giving Ken Cowley another 3 years you are sending the wrong message to other executives about accountability,” Crikey told Rupert.

But Rupert is nothing if not loyal and he launched a spirited defence of Cowley pointing out that he joined the company in 1964 and has contributed in an “outstanding” way to the development of the company over the years.

Institutional shareholders have yet again demonstrated how pathetic they are when voting for directors as Cowley only received 1.72 million votes against his re-election compared with 1.208 billion in favour. Even if you strip out Rupert’s personal holding of about 620 million shares, Cowley’s yes vote was more than 99.5 per cent.

The no votes for the other directors ranged between 906,161 for finance director David Devoe to 1,010,996 for James Murdoch.

How bad does Ken Cowley have to be for institutions to actually vote against his re-election? Afterall, he quit the PMP and Commonwealth Bank boards in March so why does he want to hang around News Corp. Is it because the law requires Rupert to have two Australian-based directors and he wants compliant Ken?

AT LAST, THE JAMES MURDOCH RESOLUTION

After the Cowley exchange, David Devoe, Bert Roberts and Graeme Kraehe were waved through without any comment and then the Falun Gong man finally got his moment in the sun.

John Deller has written a separate piece for Crikey explaining how the Falon Gong works but he made his case well in criticising James Murdoch for his comments to a Milkin Institute forum in Los Angeles that the Falon Gong was “dangerous and apocalyptic cult”.

Rupert admitted he was in the audience at the time and, without criticising James directly, he did label the comments “undiplomatic”. We’ll have more on this later.

PAID MORE THAN THE PACKERS

Both Crikey and the Australian Shareholders’ Association spoke against the 12,000 options to non-executive directors and truck-load of options being offered to executive directors. This was the question I asked:

“Kerry and James Packer gloat that they do not draw $1 in salary from PBL because they own $3 billion worth of shares and that is incentive enough. Given that the Murdoch family owns more than $10 billion worth of News Corp shares, why did Rupert, Lachlan and James need to be paid a combined $21m in cash for the year, especially when you consider that the family received about $50m in dividend payments?”

Rupert doubted that the dividend payment was that high and then proceeded to strongly support James and Lachlan saying: “My sons are very valuable executives, they are paid less than people of equal standing (in other companies) and deserve every penny.” For the record, James Murdoch’s salary package was $3.06 million in 2001while his brother Lachlan took home $2.59 million. Shareholders approved the allotment of 160,000 options for James and 260,000 for Lachlan at an exercise price of $14.03 but the no vote topped 20 per cent.

SOME BITS AND PIECES

You should know that I’ve got some good shots of Rupert’s 737 at Adelaide Airport and that Rupert personally promised the Falun Gong spokesman that he would read his material on the plane back to Melbourne and also pass on all of his comments to James Murdoch.

Rupert did have a dip at one stage pointing out that I was not a shareholder and “you use proxies to get publicity for your website.”

But on the whole he was pretty good last Thursday. He gave a detailed press conference to about 40 hacks, who were then locked out of the tea and bickies and had to leave the Hyatt Regency through the basement kitchen. Some things never change.

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