News Corp this morning confirmed it has settled with litigious minority shareholders of Fox Entertainment Group in a move that secures the $8 billion mop-up takeover and will further exacerbate Rupert Murdoch’s gerrymander control over the ever expanding company.
Rupert was initially offering 1.9 News Corp non-voting shares for each Fox share he didn’t control but when only a miserable 1.7 million Fox shares were tendered and litigation broke out, the Sun King caved in and today increased his offer by 7 per cent to 2.04 News Corp shares for each Fox share.
This means News Corp minorities are further diluted as the initial proposal would have seen 332 million new non-voting News Corp shares issued but this has now been increased by 24.5 million shares to 356.5 million. In other words, Rupert has just given away an additional $540 million worth of his powerless News Corp scrip to get all of Fox back into the News Corp fold.
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However, it is not really a 7 per cent increase because News Corp shares have performed so badly over the past few weeks. When the offer was first launched, News Corp ordinary shares were trading at $24.20 and the preferred stock was at $23.40.
The ordinaries jumped 50c to $22.78 today and the preferred stock gained 46c to $22.10 but they had fallen $1.92 (7.9%) and $1.76 (7.5%) respectively since the mop-up was announced on January 10, so all Rupert has really done with today’s increased offer is compensate for the weakness in the News Corp share price. The Australian dollar has risen from US76.07 to US78.18 so this only partly explains the $A share price weakness in News Corp’s stock.
So much for the re-rating that was meant to follow the move to America.
Ever since News Corp did the initial 1 for 2 bonus issue of non-voting stock back in 1991, Rupert has been issuing the powerless paper like it is confetti to fund his dream of world media domination. However, no single deal has produced a deluge of new non-voting scrip like this as the 356.5 million in new non-voting shares to be issued are worth $7.87 billion at today’s prices.
After the share consolidation associated with last year’s shift to America, News Corp had 1.89 billion non-voting shares on issue and only 1.044 billion voting shares. Rupert only owns 62 million non-voting shares so his percentage stake will fall from 3.27 per cent to just 2.75 per cent of the expanded 2.249 billion total after this deal.
In economic terms, Rupert’s stake will fall from 12.61 per cent to a record low of just 11.24 per cent (370 million shares out of 3.292 billion). How on earth someone with 11.24 per cent of something can have 100 per cent control is beyond Crikey’s comprehension. The key is Rupert’s 30 per cent stake in the voting shares – 307.8 million out of 1.05 billion.
Investors who took a punt with Rupert’s Fox spin-off back in 1998 have made a tidy paper profit but they will be left with non-voting stock in a sprawling empire.
The original float of 124.8 million shares in 1998 was priced at $US24 a pop and pulled in $US2.8 billion, the biggest cash infusion News Corp had received up until that point in a deal that finally made the balance sheet impregnable after years of high gearing ratios.
There are now 174.8 million Fox shares not owned by News Corp and the new mop up price is valued at $US34.27 although Fox shares gained $US1.44 to $US35.09 overnight.
Now more than ever, the case for merging the two News Corp voting classes into one is stronger than ever but with every deal that Rupert funds with non-voting stock, his economic interest in the company reduces so his incentive to merge the shares reduces.
As we’ve said all along, if only one class of share is allowed in the S&P 500 index, News Corp should operate with only one class of share. After this deal, the voting shares will comprise just 32 per cent of the total shares on issue but none of them will be included in the S&P500.
Rupert is effectively telling these shareholders he is happy to trade off a lower share price for family control. If it was good enough for Frank Lowy to trade a 30 per cent in Westfold Holdings into an 11 per cent stake in the expanded Westfield Group after last year’s merger, it should be good enough for Rupert to end the gerrymander and recognise that all shareholders should be equal.