Looking through Rupert’s fog of war

Melbourne awoke today to a typical late winter fog, thick and
damp. And you could say the same about some of the stuff in the News
Ltd papers about Rupert and Lachlan Murdoch’s charm offensive on the
$2.95 billion Queensland Newspapers transaction and the shift of
domicile to the shareholder-unfriendly US state of Delaware.

It was day four of the imperial grand tour of Australia by Murdoch
senior and junior and after this morning’s efforts, as many questions
remain as the dynamic duo managed to answer. Such as the new
constitution for News Corp, dividend policy, voting intentions of
various shareholders and the value of Queensland Press.

Try this piece in The Australianwhere
Rupert discusses oil prices and forgets about his famous prediction
before the Iraq war last year that oil prices would drop to $US20 a
barrel. Now there’s a problem with rising prices!

And there was the media statesman looking back and looking forward, in The Australian’sMedia section.

And Terry McCran’s piece in The Herald Sun was sent north to The Courier Mail,
part of Queensland Press, the key asset to be shuffled in the whole
transaction. So naturally confidence was the order of the day in the
empire’s outposts.

TheAFR’s Chanticleer columnist, John Durie, a man who got to know Rupert in New York when working on The New York Post’s
business pages, had a chat with his old boss and produced the most
informed of today’s stories. The News Corp chairman seemed to baffle
himself with statistical acrobatics when he said he was confident
of 100% approval from US investors and that there would need to be 90%
opposition in Australia to block it.

Well no, 75% of shares and 50% of shareholders of both classes of
shares (excluding the Murdoch interest) of News must approve of the
deal. And how on earth does Rupert know how many people will actually
bother to vote? Typically, about half the shares will be voted and when
you also exclude the Murdoch shareholding, it would only take about
8.75 per cent of the voting shares on issue – that’s about 180 million
shares worth almost $2 billion – to vote the proposal down.

Durie revealed and named two institutions said to be opposed to the
deal, Schroders and BT, which together own 19 million ordinary and 51
million preferred shares.

As usual the best informed reporter was Neil Chenoweth in The Australian Financial Review.
Headed “Family control is protected” he details a filing with the US
Securities and Exchange Commission by News Corp earlier this month of a
proposed new constitution for the group.

Try as we could there was no mention to be found on the ASX website
for News Corp, nor any mention of this in the News Ltd papers today, or
yesterday.

Chenoweth says the new constitution follows Delaware law which has
the most friendly legal system for incumbent boards and managements of
any American state.

Under the new charter, the News Corp board will have significantly
increased powers to issue capital, to approve share sales by the
Murdochs and John Malone’s Liberty group and to block share
transactions which it believes may pose regulatory problems.

“That’s the poison pill,” a Sydney analyst commented yesterday.

“Directors, who can be appointed by the existing board, can only be
dismissed by a majority vote of all the voting stock on issue, and then
only ‘for cause’, which requires misconduct by the director.” It sounds
like they’ll need the fire brigade to get any Murdoch out of that
boardroom and all his further raises suspicion that family succession
is the key motivator in the whole exercise.

The Murdoch control has also been protected by a little-known ruling
by Australia’s Foreign Investment Review Board in the 1990s, which
capped the level of foreign corporate investors in News Corp at 39 per
cent – a level already reached by the Murdoch and John Malone interests
in the voting stock although the AFR quotes News executives saying this applied to all the shares on issue.

The spin offensive in today’s papers has done nothing for News
Corp’s share price as the ordinaries dipped 16c to $11.02 and the
preferred stock lost 6c to $10.41. The Murdochs all think the shares
are undervalued but they keep on chasing this deal which isn’t adding
any value at all.

As we’ve said before, ordinary News Corp shares will not be included
in the S&P 500 as only one class of share can be included and that
will be the more numerous preferred shares. As an ordinary shareholder,
why would you vote to create something that means 2.1 billion shares
will not be in included in any index.

Rupert professes to have been “shocked” by the S&P decision
which has sent the share price tanking. It does look like a deal
breaker but for some strange he is pushing ahead regardless. Is this a
case of succession planning ahead of the interest of all shareholders?

Another grovelling effort from Terry McCrann

Having pocketed millions from News Corp over the past 15 years,
Terry McCrann has once again covered himself in glory with a
sychophantic interview with Lachlan and Rupert that was splashed all
over the editorial pages of today’s Herald Sun.

It was a revealing performance as Lachlan and Rupert both talked in
detail about some of the controversial elements of the move to America.
The headline was “Still call Australia home” when we all know that News
Corp is scampering off to America in something that is far more than
the mere paper transaction that Lachlan claimed.

McCrann claimed Lachlan was running News Ltd in Australia when he’s
based in New York and John Hartigan has been CEO of News Ltd for the
past three years.

Lachlan said a partial float of News Ltd’s Australian operation
would only happen “over our dead bodies” and then claimed it would make
News Corp less Australian – “the exact reverse of what we want to do”.

Okay, Lachlan is now claiming he wants to make News Corp more Australian – therefore why the move to America?

Lachlan also gloated that small investors “have been part of the greatest growth story of the past 50 years; and the next 50”.

Such amazing forsight! Truth be known, News Corp shares have
actually underperformed the Australian index over of the past decade,
especially when you consider the tiny flow of dividends.

But the most interesting comments came from Lachlan on the
Queensland Press transaction. If this doesn’t happen, the shift of
domicile doesn’t happen. It’s more important for the private interests
of the Murdoch to be sorted out and that untidy 58 per cent of
Queensland Press be shuffled off into News Corp than to remain in the
Cruden camp, especially with old man Murdoch into his 70s.

McCrann quoted Lachlan arguing that the Queensland Press transaction
was “too cheap”. A quaint notion seeing it’s accepted there’s a 10 per
cent premium built into the $2.45 billion price (and the $500 million
of accompanying debt). But Lachie is clearly a fighter in dad’s mould.

Comparing the valuation of Queensland Press to that of West
Australian Newspapers (similar markets) Lachie said, according to
Tezza, that “we are selling the best newspaper business in Australia
for zero control premium”.

What’s that? Selling Queensland Press to yourself for no control
premium? Where’s the sense in that? And what about the other
shareholders in News Corp? Why offend them with a price more inflated
than it already is. That would defeat the domicile move, which IS the
main game.

More a case of down Lachie, down boy!

And there’s this quote from Rupert who was asked about buying News
Corp out of Queensland Press. “We (the Murdoch family) would do it in a
flash”.

So we now know that the Murdoch family is too poor to take
Queensland Press private without selling down some of their News Corp
shares.

Lachie says the family “is giving up hundreds of millions of dollars
of value to get the change of domicile done”. Now, not only too poor,
but philanthropic into the bargain. Are we talking New Age Murdochs
here?

Rupert revealed that some in the family “argued hold out for a
higher price”, but Lachie “disagreed” with that and then came up with
this gobbledygook, “I’m not sure we said that. If there’s a way not to
sell it, we shouldn’t sell it. You agree with that? If there’s a way
not to sell?”

But Rupert’s wiser head prevailed and he declared the deal had to be
done, “Our reputation is more important that the last hundred million
dollars.”

Ahhh, to be able to dismiss a hundred million dollars like that!

Finally, we have the quaint question of paying tax. A Fairfax
journalist asked Rupert last week during the results conference call
whether News Corp was buying Cruden rather than Queensland Press for
tax reasons.

“No”, said Rupert rather emphatically.

John Howard would be proud of that wriggle because today’s Fin Review carries the following line.

“He (Lachlan Murdoch) said the publishing interests (in Queensland
Press) could not be split from the holding in News Corp without
triggering a big tax bill for QPL.”

That’s not quite the case. Here’s a company that for years made a
habit of plumbing the tax havens of the world for the best deal.
Remember the Caymans, Hong Kong and the like.

Why not sell the newspaper assets separate to the News Corp shares? For tax reasons, it seems.