News Corp released it’s “information memorandum” explaining the US move to shareholders earlier this month but Australian super funds now appear determined to vote it down. This is how Crikey covered this story for our paying subscribers:

Rupert Murdoch’s plans to move News Corp to America yesterday received a major set-back when the Australian Council of Superannuation Investors announced it would be recommending all members vote against the proposal on governance grounds.

ACSI and the proxy advisory outfit Corporate Governance International entered into extensive dialogue with News Corp attempting to scoop up the best of CLERP 9 and incorporate it into the new American constitution of the Delaware-based version of the world’s most global media company.

But as Crikey wrote on the day the 374 page information memorandum was released to the market, Rupert chose to give Australian institutions the big two-fingered salute so he shouldn’t be at all surprised with yesterday’s development.

Rupert gives shareholders two-fingered salute

Second subscriber email September 15

He made us wait all day but at 2.21pm this afternoon Rupert finally dropped the information memorandum for his move to America and it’s a lazy 374 pages as you can see here. In summary, he’s given a big two-fingered salute to the institutions and embraced all the worst features of the Delaware system.

For those stretched for time, check out the three page press release here. We’re still waiting for the annual report and notice of meeting for the AGM, which will reveal which directors are up for re-election and any new options issues to executives.

Events kick off at 10am in Adelaide on October 26. Crikey has just booked his tickets and suggests you all get in quickly as the Hilton International in the City of Churches will be the place to be in six weeks time for the mother of all showdowns between institutional Australia, patriotic retail shareholders and the most powerful man in the world.

There will in fact be five different meetings on the day with the last not to start any earlier than 11.15am. That’s optimistic. Rupert’s AGM used to be 20 minute affairs but we’re not booked on a flight home until 5.35pm and expect proceedings will take at least three hours in total which would be double the length of any previous News AGM over the past 50 years.

We’ve only had time for a cursory look at the document and will be putting out a special News Corp edition at around 8pm this evening.

However, it is nice that the family hasn’t saddled News Corp with Cruden’s art collection and the Murdochs will be paying $21.33 million to take it off the American company’s hands.

Similarly, $18.55 million is being shelled out for the waterfront property in Sydney that Lachlan prefers to stay in and the family farm near Yass, Cavan, is also being sold to the Murdoch family for $23.5 million.

On first reading it doesn’t look like Rupert has taken up many of the suggestions about incorporating the best of Australian corporate governance laws in his new constitutions. It’s Delaware or nothing seems to be the approach.

The document also talks up the prospect of News Corp’s non-voting shares being included in the S&P 500 index but it seems crazy to propose something that leaves the ordinary shares not in any major index anywhere.

There also seems to have been a change and Rupert is taking some of these financially more attractive non-voting shares as consideration for the $2.45 billion Queensland Press related party transaction.

As you would expect from Rupert, he’s selling out of the Queensland newspaper industry as it moves into a big upswing thanks to the current advertising boom. The Queensland Press publishing division enjoyed a 27 per cent rise in revenue to $528 million in 2003-04 and the EBIT soared 60 per cent to $194 million. Whether that is sustainable is another matter.

Rupert’s frank admissions

Third subscriber email September 15

Rupert Murdoch may have thumbed his nose at institutions who attempted to broker a deal whereby his new constitution would tone down some of the nastier aspects of incorporation in Delaware, but at least his 374 page information memorandum lodged with the ASX this afternoon has spelt out the downsides of Delaware.

A governance expert Crikey spoke to this afternoon said that Rupert had produced a good and fair document which spelt out the arguments clearly, even if the proposal remained highly controversial and in danger of being voted down because Delaware is such a shareholder unfriendly place.

For instance, Delaware allows what’s called board staggering which means that if Crikey suddenly got cashed up and bought a 50.1 per cent voting stake in News Corp we wouldn’t be able to seize board control immediately, as would occur in Australia, because under Delaware law all the directors would have to progressively serve out their three year terms.

It is these sorts of poison pills which are bad for shareholders because it is hard to get rid of dud directors and more difficult to launch a takeover which in turn reduces any takeover premium in the share price.

The market was clearly happy that the uncertainy ended and sent News shares soaring 4 per cent in afternoon trade as the stock closed 47c higher at 11.98, perhaps reacting to Rupert’s brazen threat to come back with another proposal if shareholders vote this one down.

The preferred shares were even stronger, rising 51c to $11.60 and reducing the premium enjoyed by the voting shares to a record low of just 3.27 per cent.

This is the most puzzling aspect of the whole deal. Why would Rupert undertake a transaction that is costing him and the company about $100 million (it looks like NSW will score most of the $51 million in stamp duty) when the biggest change is a transfer of billions of dollars in value from the ordinary shareholders to the preferred shareholders?

Before this was announced, the preferred stock traded at a discount of up to 15 per cent to the ordinaries but Rupert presumably didn’t mind too much because more than 80 per cent of his holding is in voting shares.

If Rupert really is so keen to get News Corp in the S&P 500 why has he structured a deal that leaves the ordinary shares out of it and tilts things back towards holders of the non-voting shares?

It would make far more sense to restructure News Corp so it has only one class of share and then have 100 per cent of the company in the S&P 500 rather than just 70 per cent through the non-voting stock because the Americans only allow one class of stock in the index. But that would leave the Murdoch family with a voting stake of only 12.61 per cent so clearly Rupert is putting his family’s control ahead of the value of the family stake. That really says something about his desire to hand control one day to either James of Lachlan and his wish to keep John Malone at bay.

All up this is a hugely complex transaction and argument so it was understandable but a little disappointing that PM and The 7.30 Report both failed to make mention of the story this evening.

The first biting commentary anywhere came from Michael Pascoe on the Murdoch managed Foxtel’s Sky Business Report.

The acerbic Pascoe said he couldn’t find any analyst prepared to comment on the record but one analyst told him anonymously that today’s 4 per cent share surge might have been some ramping by “friends of the Murdochs”.

Oh dear, that’s a naughty thing to say on a Murdoch managed outlet.

Pascoe also pointed out correctly that independent experts always approve deals so Grant Samuel’s tick was nothing to get excited about it. That $2.95 billion valuation on the Queensland Press publishing business certainly looks on the high side.

There are also some pretty seismic accounting changes stemming from the Delaware move as the News Corp balance sheet gets a serious makeover. Publishing rights, TV licences and the like will be written down by a whopping $US10.78 billion to comply with US GAAP rules but goodwill will be written up by $US6.873 billion.

Current payables will also soar by $US6.126 billion and deferred tax liability is up by $US2.3 billion, although we’re not sure what all this means for the bottom line and cash flow. Probably not much.

We’re really looking forward to what the commentators say in tomorrow’s papers but here is some of the early coverage on the wires:

CNN have made the old mistake of claiming News Corp is Australia’s biggest company when they’re now almost $20 billion behind BHP-Billiton.

AAP produced a straight but detailed report which is running on the News Ltd websites.

Yahoo tried to get some comment from Standard & Poors and drew some comparisons with other US media giants.

Business Wire spells out the bare bones of the arguments in favour of the deal being pushed by Rupert.

Finally, it is wonderful gesture of Rupert to buy back the art collection but continue to show it off in News Corp offices around the world. Still, the price is about 18 months salary and when you’re worth $10 billion you can be generous.

Rupert’s record pay packet

Subscriber email – 16 September

Anyone worried that News Corp’s move to America will lead to a pay bonanza for the Murdoch family and their top executives would have to be a little concerned by the figures revealed in the 2003-04 annual report, which was lodged with the ASX for the last time this morning.

Sure, it was a record year in terms of profit reported but the News Corp share price hasn’t gone anywhere for 5 years.

Rupert’s base salary in 2003-04 was $US4.5 million and his bonus was a staggering $US12.5 million. Add in a further $US3.5 million pension (wouldn’t we all love to write our own super scheme) and the total was a staggering $US20.7 million – or a nice round $30 million in Australian dollars.

Long-suffering shareholders who have put up with Rupert’s refusal to pay decent dividends for years will be amused to note that his family is taking almost as much in salary from the company as they get in dividends.

The highest paid non-Murdoch is naturally chief operating officer Peter Chernin who in 2003-04 scored a salary of $US8.3 million, a bonus of $US8.9 million, plus $US660,000 in pension and “other” of $US2.3 million. All up this comes to $US20.16 million so he’s fallen behind his boss for the first time in at least six years.

The Crikey library only stretches back to when we started out in shareholder activism but six years of News Corp pay figures reveals some intriguing trends:

In 1998-99 Chernin scored $US11.7 million whilst Rupert lagged with just $US6.3 million.

In 1999-2000 Chernin landed $US11.8 million against Rupert’s $US6.53 million.

In 2000-01 Chernin pocketed $US20.13 million compared with Rupert’s $US7.57 million.

In 2001-02, Chernin collected a total of $US17.88 million whilst Rupert lagged with $US9.2 million

In 2002-03, Chernin scored $US16m million while Murdoch’s package was $US14.1 million

Therefore, over the previous five years, Chernin was paid $US77.51 million or an average of $US15.5 million and his boss collected $US43.7 million or an average of just $US8.74 million.

That means the $US20.7 million Rupert has just collected for 2003-04 is more than double his average of the previous five years and $US5.3 million more than he’s ever been paid before in a single year.

Chernin’s 2003-04 total of $US20.16 million is a new record by a mere $US30,000 but with the lad having just signed a new five year contract, expect this to rise again next year.

When you consider the combined packages of the big two at News Corp, the $US40.86 they received in 2003-04 is more than $US10 million above any equivalent figure from previous years and $US16.62 million above the combined average of $US24.24 million over the past five years.

News Corp comment follows party lines

News Ltd’s Terry McCrann was typically gushing in his appraisal of the massive Information Memorandum released by News Corp yesterday. His master’s voice writes:

The information – all 374 detailed, warts-and-all pages of it – is out; it’s been given a ringing endorsement by independent expert Grant Samuel, directors have unanimously signed off on it.

Again, in formal terms the question – questions – posed are complex. But they can in practice be distilled into a single stunningly clear one.

Are shareholders prepared to back Murdoch in what he believes is fundamentally necessary to best position News Corp for its second half-century?

More basically even: do you back Murdoch or little-Australia index-hugging fund managers?

Importantly, independent expert Grant Samuel endorsed News Corp’s shift to the US as clearly in the best interests of shareholders.

Not only the interests of shareholders as a whole, but for each of the individual shareholder categories.

And it went a step further in its endorsement – concluding that shareholders as a whole would actually be better off if the shift happened than if it didn’t.

The Australian’s Brian Frith was also toeing the party line but is much more detailed and respectable manner. Check out his column here.

At least The Age’s Stephen Bartholomeusz – Delaware not best address for most shareholders – was a little more circumspect, writing:

The proposed transfer of News Corporation’s domicile and primary listing to the US is almost certainly in the long-term interests of the group and its major shareholders, the Murdoch family. Neither the company nor the family, however, will decide the issue and, after the release of a massive information memorandum yesterday, the fate of the proposal remains uncertain.

The issue will be decided by the non-family shareholders, largely institutions, and will probably be determined by local investors for whom the appeal of the deal is far less certain and less attractive than it is for the other participants.

And over at the SMH, Elizabeth Knight comments:

The average shareholder will have endless trouble making sense of the News Corp information memorandum on its proposal to relocate to the United States, which was released yesterday.

Sure, there is an independent expert’s report that says this deal is in their best interests. But the 300-plus pages of information on how it will happen and why is dense enough that few will understand it.

The bottom line is that for Australian shareholders, particularly smaller ones, the move will probably give them few immediate advantages.

Finally, it was very interesting to see the Fin Review’s Chanticleer columnist John Durie remains all out in favour of the deal. It should be remembered that Durie spent several years working for Rupert on The New York Post and got to know him quite well over that time.

The Fin Review has the power to see this deal voted down but it seems like they are going to supinely wave it through. Are Michael Gill and Glenn Burge worried about any boardroom backlash if Rupert was to be embarrassed by a well-researched, well-argued AFR campaign?

Afterall, we all know that Fairfax director Mark Burrows, the man who apparently gathered the numbers to oust Fred Hilmer, is an old Murdoch mate and adviser over many years.

If Fairfax had any serious balls they could also upset the whole proposal by announcing plan to launch a paper in Brisbane. After all, if Rupert claims his Queensland Press publishing assets are worth a whopping $2.95 billion, doesn’t that suggest there is easily room for two profitable papers in Brisbane?

Or is Fairfax terrified that such a tactic would produce a typically nuclear response from Rupert, such as a daily rival to the AFR?

Rupert’s record salary

Subscriber email – 17 September

The Age came up with a great idea today with its lead business story – five years of figures comparing the pay of Rupert Murdoch and Peter Chernin, accompanied by a five year share price gap showing chronic underperformance. Now where did they get that idea from?

Go to the story here and then see the graphic under “Murdoch millions”. It was the best package produced anywhere today, although it is a bit unfair to go for the five year share price graph because News Corp bubbled all the way up to $28 in the dot com boom.

If you take a 10 year view Rupert has doubled the News Corp share price from $6 to $12 and the stock is up another 13c to $12.07 today bringing the rise for the week to 79c or 6.9 per cent. The preferred shares have also done well, rising 6c today and 76c for the week to $11.62.

However, if you include all those tiny dividends News Corp has paid as Rupert struggled for the past decade to reduce News Corp’s debt whilst expanding every year, the company’s shares have still underperformed the broader market on a 10-year time frame.

Interestingly, it seems that this year will be the first in News Corp’s recent history that Murdoch family salaries will actually exceed the dividend flow on their direct $8.8 billion News Corp shareholding.

The dividend was only about $33 million in 2003-04 but the combined salaries was $37.8 million. However, the Murdoch family used to enjoy bigger dividends out of Queensland Press but these will disappear next year so, with News Corp debt now under control, stand by for an increase in dividend payouts.

Besides, Rupert loses his incentive to derive his News Corp wealth from untaxed capital gains rather than taxable dividends because on November the 12th he’ll be deemed to have crystallised his shareholdering from a capital gains tax point of view thanks to the move to America.

Then again, taking a whacking huge salary also gets taxed so we can’t be too mean on him.

Terry McCrann and his master’s voice – yet again

Subscriber email – 19 September

Murdoch loyalist Terry McCrann had an interesting column in The Weekend Australian which naturally talked up the News Corp move to America. Check it out here.

We particularly liked these lines:

“But the bottom line is that News Corp has to shift to the US. No half-sane, half-intelligent person – and you don’t have to be both — believes otherwise. Indeed, it is entirely possible that CBS network news anchor Dan Rather is the sole person on the face of the planet that might believe otherwise.”

That sort of rhetoric would go down well in North Korea or the old Iraq. Such unquestioning loyalty to the dear leader. This proposal is still a good chance of being rolled which makes McCrann’s emphatic assertions all the more laughable.

However, the bearded burbler appeared to be well briefed on the shape of the News Corp share register which is what made his column all the more interesting.

According to McCrann, the break-downs in the two classes of shares are as follows:

News Corp ordinary shares

Murdoch family 30 per cent
John Malone 9 per cent
US institutions 21 per cent
Australian institutions 19 per cent
Small investors 9 per cent (mostly Australian)
Rest of the world 12 per cent

News Corp preferred shares

Murdoch family 6 per cent
John Malone 22 per cent
US institutions 34 per cent
Australian institutions 20 per cent
Small shareholders 14 per cent (majority US)
Rest of the world 4 per cent

Remember that Rupert can’t vote his own stock and has to win four ballots because he needs 75 per cent of the shares voted representing more than 50 per cent of all shareholders (regardless of size) in both classes of shares.

His big problem will be with the ordinary shares because they lose out from being kicked out of the Australian indices and not included in the S&P 500. There will also be more Australian ordinary shareholders that lose out from a tax perspective.

You also have the self interest argument in that losing News Corp will be bad for Australia, so some local institutions might oppose it on those grounds alone and local ownership is more concentrated in the ordinary shares, particularly at the smaller end.

Mr and Mrs Crikey have four votes to cast at the meetings on October 26 as we’ve both bought $500 worth of preferred and ordinary shares.

We’re keen to gather up as many proxies as possible to vote on the floor of the meeting, especially for the resolutions where small shareholders have disproportionate influence.

Therefore, why don’t a few members of the 15,000-strong Crikey army buy a small parcel of News Corp shares and give us there proxies. In a close run election, holding 100 open proxies on the floor of the meeting could be a lot of fun.

You can bet your last dollar that the News Corp forces will be doing exactly the same thing to stack the yes vote. How many employees from around the world will be encouraged to back the boss? When it’s all over, Rupert might actually regret refusing to ever have a proper employee share scheme in the past.