As any investor knows, timing in investment is everything. Just ask Rupert Murdoch and his new big shareholder, the aggressive US hedge funder John Paulson.
Of the two, Murdoch has shown that he is the keen student of market timing. In February of this year he bought 4 million A class shares (the vote less ones) in a deal that marked his first purchase of News shares in five years. News Corp said at the time the purchase was “a sign of his belief in the future of the company”.
News shares were starting to come under pressure from the growing phone-hacking scandal in the UK. Andy Coulson, the former editor of News of the World, had just resigned as the spokesman for UK Prime Minister, David Cameron and questions were being asked about the extent of the hacking and just who knew what.
The purchase told the market that the 80-year-old chairman and CEO was a believer in his company’s future. That he bought the almost useless A class, non-voting shares was not commented upon by the cheer squad. A real sign of confidence would have been to buy the more expensive and voting B class shares. But when you control 38% of those anyway, any purchase would be window dressing at best.
Then on Friday, Murdoch morphed into a seller, with almost all the 4 million A class shares being punted.
He told the US Securities and Exchange Company that he had sold most of his non-voting shares over two days last week in a move described in some media reports as “estate planning”. Company reaffirming deal out the window and preparing for mortality was the new justification.
That sale, in two tranches, should be reported to the ASX today or tomorrow in a shareholder notice after the SEC filing on Friday. That filing revealed that Murdoch sold sold 3.63 million class A shares at prices between $US16.60 and $US17.26, the company said in a Securities and Exchange Commission filing, for a total of $US61.7 million.
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Murdoch sold his shares on November 16 (2.628 million at $US17.07 share) and 17 (1.005 million at $US16.76 a share). The purchases in February were at similar prices.
The Financial Times and other media reported that News Corp declined to comment, “but two people familiar with the move said the sales were made for routine estate planning purposes”.0
Murdoch still has 361,000 non-voting A shares, worth around $US6.1 million and his 38.4% family block of B shares, which carry the voting rights that protected Murdoch, his sons James and Lachlan and other directors from that record protest vote by non-Murdoch shareholders at the AGM in Los Angles on October 21.
But timing is everything and the sales were a wonderful example of what can be achieved if you get it right.
Back on July 12, News Corp revealed that it was starting a $US5 billion share buyback scheme to support the share price, which had weakened to around $US13.38 after the phone-hacking scandal intensified and the News of the World was closed and the Murdochs’ role in managing the company was questioned by a Parliamentary committee.
That buyback has so far cost News around $US2.2 billion (as of last Wednesday) and most, if not all the shares bought back have been A class non-voters and mostly listed on the Nasdaq exchange in the US. Few seem to have been bought back in Australia, according to the SEC filings.
The impact of the buyback has been dramatic. News Corp shares, which traded at $US18 at the start of July, before the hacking scandal went very bad for News, fell to that low of $US13.38, then recovered in the wake of the buyback starting. They closed at $US16.32 in New York on Friday.
Because News Corp itself has been a major buyer of company shares through the buyback, Murdoch got a better price for the shares he sold last week, than if he’d sold them in July or August. Timing is everything in investment.
But while the Murdoch sales have grabbed market attention, the move onto the News Corp register by John Paulson has come quietly, with little fanfare.According to filings and reports to investors, Paulson had built a 1.8% stake in News Corp’s B shares as of the end of September, valued at almost $US250 million. He has been amassing shares in News for at least six months and paid more than $US16.40 a share on average.
That makes him the third biggest holder of the key voting shares in News behind the Murdoch interests and the man who supported them at the AGM, Prince Alwaleed bin Talal, the Saudi investor, who controls a 7% stake.
The news has started speculation about what Paulson wants from his holding. Buying the B shares indicates he wants to influence News Corp in some way. A pure investment play, looking for value and capital gains, would have seen A shares bought.
Paulson is famously known as one of the few investors who saw the subprime crunch coming and shorted them and their derivatives (thanks to Goldman Sachs, it is said). He made billions. But he is also the big investors who built up a big stake in the Sino-Canadian forestry group, Sin Forests, only to see the investment lose hundreds of millions of dollars in value and he was forced to sell out at a huge loss. This year has in fact been Paulson’s worst year of his career.
The last big US investor to appear on the News share register was John Malone, the very successful pay TV investor who forced Murdoch to sell him control of Direct TV and some of investments in change for a 19% stake in News. It was “greenmail” and Malone took advantage of the move by News from Australian domicile to the US to buy his stake and make life difficult for Murdoch.