Rupert Murdoch might be the most powerful man in the world but he’s under siege at the moment and resorting to disgraceful tactics that do him and his family no credit at all, as Crikey editor Stephen Mayne explained in these subscriber updates.
Subscriber email November 8
Not one week since Rupert (the Sun King) Murdoch pulled up corporate stumps in Australia to move to Delaware he has landed his first blow. Today News Corporation announced a “Stockholder Rights Plan” which is a thinly disguised poison pill designed to stop John Malone and Liberty Media from gaining control.
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Check out the two page announcement here.
The move was swift, coming on the heels of some trades done last week by Malone that effectively lifted (or will lift) his stake in the voting shares of News Corporation from 9.15% to 17.1%.
All this bunkum being put around about Malone and Murdoch acting in concert and Rupert being “relaxed” is disproved by the following line in today’s statement:
“On November 3, 2004, immediately after the Australian Federal Court approved the Company’s reincorporation from Australia to Delaware, Liberty Media Corporation disclosed that it had entered into an arrangement with a third party allowing Liberty to acquire an additional 8% of News Corporation voting stock. This action was taken without any discussion with, or prior notice to, News Corporation. For this and other reasons the Company has put in place a Rights Plan to protect the best interests of all shareholders.”
Should Malone or any other party (but the real intent is to affect Malone) buy more than 15% of the voting shares the “Shareholder Rights Plan” will be triggered. At this time all other shareholders of both voting and non voting stock will be able to purchase up to US$80 worth of News Corporation stock at half the prevailing price.
Malone’s current holding of 17.1% is grandfathered into this structure but any increases beyond a 1% cushion will trigger the rights plan. The gift to all the other shareholders of half price shares effectively acts as a poison pill as it immediately increases number of issued shares in News Corporation thus diluting the party moving beyond 15% (or in the case of Malone 18.1%). Gee John Malone must be starting to annoy Rupert big time!
News Corporation has been sold off by more than 4 per cent today as investors digest the significance of this move. The stock closed down $1.06 to $22.64, meaning Rupert is almost $1 billion poorer today but he has entrenched his power and that is what matters.
Whilst the News Corporation press release stated that it introduced the rights plan “to protect the best interests of all shareholders” some of the more savvy institutional investors see it as a move to protect the Murdoch family interests. Could that be too cynical?
You would think Rupert would have waited until after November 12 when his $9 billion (now $8 billion) capital gains tax exemption ended as a new deemed purchase price is set. Why annouce something that trashes the share price just days before this key date. It seems the aging and increasingly paranoid Rupert would prefer to pay more tax and have a lower share price than have a proven performer like Malone put a fire under his share price.
Finally, perhaps some good can come of this? Clearly Malone is keen to have enough voting share to have a say in what happens at News Corporation. This will be good for all shareholders in the event that 73-year-old Rupert is no longer at the helm as to-date it is uncertain that the two over-promoted and overpaid sons have the right stuff.
In will be very interesting to see how Rupert’s cheer squad of loyal lieutenants, led by Terry “HMV” McCrann respond to this development as the battle for control of News Corporation begins. It would have been illegal in Australia so all those dopey institutions who endorsed the move to Delaware only have themselves to blame.
Can anyone see any parallels with Saddam Hussein here? Rupert is like Saddam in that he’s been a dictatorial leader of his empire for a long time and aspires to hand it over to his two sons. When challenged, Rupert has immediately moved to undermine the democratic process and fend off any challengers.
Crikey is trying to jump on board the Malone camp to do some early jostling to become one of the two required Australian directors of News Corp if regime change is achieved. If that’s not possible, we’ll settle for editor in chief of the Herald & Weekly Times.
We’ve been in touch with the Liberty camp and … they haven’t got back to us yet.
Consider the actual mechanics of how Rupert Murdoch’s poison pill works and you will soon realise how farcical and outrageous it really is. At the moment, John Malone’s Liberty Media is easily News Corp’s biggest shareholder as this is how he stacks up with Rupert Murdoch’s stake after last week’s $2 billion on-market raid and side deal with Merrill Lynch:
Murdoch Family 313.5m (29.86%)
Liberty Media 180.7m (17.2%)
The Rest 555.8m (52.93%)
Total 1.05bn shares worth $23.824bn
Non Voting Shares
Liberty Media 421.5m (21.79%)
Murdoch family 108.6m (5.61%)
The Rest 1.32bn (72.6%)
Total 1.935bn shares worth $42.86bn
Combined Shares and Values (based on yesterday’s closing prices)
Liberty Media 602.2m shares worth $13.436bn (20.73% of total value)
Murdoch Family 422.1m shares worth $9.518bn (14.69% of total value)
The Rest 1.876bn shares worth $41.847bn (64.58% of total value)
Total 2.985bn shares worth $64.80bn
So, what happens if Liberty Media buys a further 1.01 per cent of the voting stock and triggers the “Stockholder Rights Plan”? Well, Malone has to sit there mutely and watch his 20.73 per cent stake worth $13.436 billion almost halve in value and become a negligible 2.57% of the expanded capital base. Talk about getting diluted!
The plan entitles the non-predator shareholders to buy $US80 worth of stock for every share they own at half price, what Goldman Sachs estimates is effectively an eight-for-one rights issue for everyone except Liberty Media, assuming they trigger this by buying more than one per cent. Based on yesterday’s closing prices of $22.69 for the voting stock and $22.15 for the non-voters, The Murdoch family and The Rest would be entitled to buy the following new shares if that happened:
Buy 2.903bn new voting shares at $11.35 a piece for $32.95bn
Buy 1.03bn new non-voting shares at $11.07 a piece for $11.41bn
Total purchase of 3.933bn new shares for $44.36bn
Buy 5.1463bn voting shares at $11.35 for $58.51bn
Buy 12.527bn new non-voting shares at $11.07 a piece for for $138.72bn
Total purchase of 17.673bn new shares for $197.23bn.
News Corp would then have 20.358 billion shares on issue and the allocations would look like this:
The Rest 14.4bn shares (70.73% of the total)
Murdoch Family 4.246bn shares (18.17% of the total)
Liberty Media 602.2m shares (2.57% of the total)
That would leave Rupert Murdoch in complete control again, so you can see how this scheme is designed to never actually take effect because it is so bad for Liberty Media which merely wants to pursue its legal right to buy shares on the market in a publically listed company.
Given that News Corp is currently capitalised at about $64.8 billion, the injection of $197.23 billion in new cash would increase the value of the company to $262 billion and it would be housing the largest pile of cash every assembled in history.
With the shares on issue expanding from 2.985 billion to 20.358 billion, the average share price would theoretically fall from more than $22 to just $12.87.
John Malone would have been diluted from 20.73 per cent to just 2.57% and a $13.5 billion investment would suddenly be only worth $7.750 billion. The $5.76 billion in lost value for Liberty Media would be split between the other shareholders with Rupert stealing about $1.2 billion of value from his largest current shareholder.
Then again, can anyone really imagine Rupert writing out a cheque for $44.36 billion to take up his entitlement? The whole thing is completely farcicial and an absolute disgrace and we urge Liberty Media to sue all the News Corp directors personally.
Given that Rupert has moved to the land of the great class action, why don’t the minority shareholders, who have now been denied a takeover premium in the share price, take legal action against the board as well?
News Corp ordinary shares recovered 55c to $23.24 today and the non-voting stock gained 41c to $22.56, so half of yesteray’s losses have been recouped. Maybe the next item is already getting some currency?
KERRY PACKER SHOULD ENTER THE NEWS CORP FRAY
By former PBL shareholder Stephen Mayne
We all know how Australia’s two most powerful families – the Murdochs and the Packers – have variously been at peace and war for the past 50 years. Well, now is the time for Kerry Packer to step up and take his place at the table for the News Corp end game.
The News Corp poison pill means that neither the Murdoch family or John Malone’s Liberty Media can buy more than one per cent in additional voting shares.
Australia’s bizarre foreign owernship laws, plus various sweetheart deals with News Corp over the years, means that no foreign media player can buy any more News Corp shares because this would breach the foreign limits on News Corp’s Australian newspaper assets.
This leaves a unique place for a well-heeled Australian investor to grab a rails run given there are Aussie institutions lining up to dump the stock before it leaves the local index.
Malone showed everyone how it was done but his raid last week arguably went fractionally over the allowable foreign limit.
However, with Murdoch sitting on 29.8 per cent of the voting stock and Malone holding 17.2 per cent, there is a big opening for the Packers to snap up a strategic 10 per cent voting stake. (Maybe even Kerry Stokes and Fairfax could team up for a similar tilt because everything will be in play once the Australia media ownership laws are changed.)
Packer could then choose to play the saviour for either of the warring parties, but wouldn’t it be ironic if he sided with Malone and therefore participated in the carve up of News Corp.
With media deregulation coming in Australia, there are many juicy News Corp assets that PBL would love to grab, not the least being the 25 per cent stake in Foxtel and maybe even the 50 per cent stake in the NRL.
With the Packers hating the fact that Rupert can gloat about conquering the world while they sat on their butts remaining the biggest fish in the small Australian pond, the revenge would be sweet indeed if the Packers could team up with Malone and decide what happens to News Corp once the time comes for Rupert to hand over management control.
It would only cost about $2.5 billion to seize this key 10 per cent voting stake and Rupert would not be able to respond with a counter raid on PBL because of foreign ownership limits on Australian television businesses. Besides, the Packers look more impregnable at PBL with a 34 per cent voting stake and no “stalker” on the register at present.
Rupert wouldn’t even be able to increase his News Corp stake because his hands are now tied by this poison pill arrangement.
If some investment banker spots this and persuades Kerry Packer to take a break from the polo horses, golf courses and gaming tables of the world and follow our advice, we’re expecting a slice of the success fee.
Then again, we doubt Packer has the nerve, savvy, decisiveness or fortitude to be like Malone. He’s just a pimple on the bottom of our globalised corporate world
The global media was all over the Malone vs Murdoch stoush today, as you would expect.
The Financial Times of London had one of the best reports as you can see here. It seems John Malone had assured Rupert he was “an ally” but this apparently fell on deaf ears.
Terry McCrann presents Rupert’s case for the “poison pill” in the News Ltd tabloids – A story of war and peace. He writes:
“Rupert Murdoch and John Malone are not yet at war. But they are no longer at peace.
“If there’d been any doubt, no longer: Murdoch has made it crystal clear, he regards Malone’s opportunistic march into his, Murdoch’s, ‘territory’ – News Corporation’s voting shares – as an ‘unfriendly’ act.
“One ‘unfriendly’ act could be considered misfortunate, even when it’s sprung as a surprise. Two such acts raise the most fundamental questions – and Murdoch has moved immediately to ensure there won’t be a third.”
Afterall, “Murdoch hasn’t spent 50 years building News Corp from nothing, to being right on the cusp of it all coming together in a potentially spectacular way, to let Malone waltz in and seize the prize.”
The Australian’sBryan Frith also takes a stab at explaining why the “poison pill” is a good move for News Corp shareholders – except Malone of course.
Both McCrann and Frith emphasise the point that Rupert has placed the one per cent limit on himself as well, which is far more restrictive than the deal agreed with corporate governance bodies. And that the one-year sunset clause on any stockholder rights plans would be honored as agreed.
Coverage in the Fairfax press has been measured. Wendy Frew writes in the SMH:
“Less than three days after News Corp started life as a US corporate entity, it has become clear just how useful a Delaware incorporation can be.”
However, no one even attempted to run the numbers on the sheer stupidity and scale of the whole arrangement, as we’ve done above. What would be the equivalent in politics? “If the Greens get more than 10 Senators, Liberal and Labor supporters get to vote four times?”
Global coverage of Murdoch vs Malone
Subscriber email – 10 November
The Murdoch vs Malone feud continues to bubble along both here and in the US. Liberty Media’s chief executive Robert Bennett was asked about the move during a conference call to discuss the media group’s third quarter earnings overnight, as the Dow Jones newswire reports here. He told analysts:
“There has been a lot of speculation surrounding this transaction, but I would like to make it very clear that we view ourselves as allies of News Corp and the Murdoch family.”
Bennett also claimed that Liberty Media didn’t notify News Corp of its plans because of the “sensitivity of the trade.”
Liberty Media reported third-quarter earnings of $US372 million, up from $US41 million in the same period last year.
Alan Kohler’s column – Murdoch makes Liberty an offer it can’t refuse – was interesting reading today as he backtracked from last week’s comments that Murdoch and Malone are great mates, but without really believing it.
He then speculated that Rupert could be setting up Liberty Media as a Queensland Press-type vehicle to cement Murdoch family control. Kohler has to get used to the idea that he was wrong and it has gone hostile between Murdoch and Malone.
He did have this interesting snippet on Liberty Media’s financial situtation:
In fact it looks to me like Liberty is looking for a purpose in life. The interactive shopping network, QVC, is earning good money but Starz is struggling and the company is too indebted ($US12 billion in loans) to grow without raising new equity. Obviously if Rupert does make a play for Liberty the big fear is he would use too much company money to buy the piece.
Meanwhile, these were the two most interesting paragraphs in The New York Times story on the News Corp saga:
Although Mr Murdoch declined to comment, several people close to him said that he was furious about Mr Malone’s decision to increase his voting stake.
A News Corporation spokesman, Gary Ginsburg, said yesterday that the two men had spoken several times in the last five days and that their conversations were “very cordial.” Nevertheless, it was the second time this year that Mr Malone had bought voting shares in the News Corporation without telling Mr Murdoch. In January, Liberty increased its stake to 9 percent.