City & Business: Murdoch's ploy

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The Independent Online
It's nice to see that some businessmen never change. In the past two years Rupert Murdoch has progressively wowed the investment community with a show of deal-making, risk-taking verve that has made him one of the most closely followed businessmen on the international stage, the darling of investors. Three years ago he was nearly bust; today he can barely put a foot wrong, in the eyes of the international investment community at least. He's not just their 'pin-up boy' (his own phrase), he is their hero, and almost everything he does wins their applause.

But just as you thought it might be safe to go out in the dark again, just as you thought Mr Murdoch was finally turning respectable (it comes to most of us in the end), he does something sure to raise the hackles.

Last wee k, at his annual general meeting in Adelaide, Mr Murdoch announced plans to create a new class of 'super' voting shares which will be issued to existing shareholders on the basis of one new share for every old one. The purpose of this exercise is so transparent that Mr Murdoch didn't even bother to disguise it; rather, he tried to make a virtue out of it. It was, he said, so that News Corporation could increase its capital base through the issue of equity without damaging the continuity of existing management, by which he meant his own.

For 40 years or more, Mr Murdoch's grand design to build the world's most powerful media empire has been counterbalanced, sometimes controversially, by a private struggle to maintain control of News Corp and of Cruden Investments, the Murdoch family company which holds the bulk of Mr Murdoch's shares in News Corp. He has largely succeeded.

True, the Cruden holding has been diluted from 45 per cent to 32.7 per cent through new equity issues since Mr Murdoch's desperate fight to save the group from angry lenders, and he occasionally has problems of dissent over the family shareholding from one of hissisters; but he is still essentially bid-proof. Indeed it was his dogged determination to maintain his shareholding at almost any cost that was the near cause of his undoing three years ago; because he refused to countenance equity financing for acquisitions he over-extended himself with bankers.

As he embarks on another expansionist phase, Mr Murdoch has no intention of letting the same thing happen again, so he needed a new wheeze to protect the family stake. Super voting shares look like the ideal mechanism.

So whatif it runs counter to prevailing trends in corporate governance and shareholder democracy? Mr Murdoch never lost anything by doing the opposite of what everyone else is doing.

Despite the controversy, I have little doubt he will get away with it. There's not much danger of tinpot back-of-beyond organisations like the Australian stock exchange and the Australian Securities Commission blocking their most successful entrepreneur (despite expressions of concern). Whether the more sophisticated international investment community will tolerate the use of junk shares for expansion is another matter. I can't imagine the low-voting stock will have much value other than the purely decorative. I spoke to two leading media analysts in London and New York last week and both said Mr Murdoch would never find serious takers for it.

Low-voting shares are no longer regarded as equity at all by many investors. Furthermore, the purpose of such devices - to allow equity funding while at the same time enshrining and protecting existing management for all time - is widely regarded as a disreputable one, particularly when it comes from such a champion of free-market practice as Mr Murdoch. It seems there's one rule for him and another, to be liberally and ruthlessly exploited, for everyone else.

Managements that are protected from change, however inspired and dynamic they are at the beginning, tend with the passage of time to grow fat and lazy. There's not much danger of that at News Corp while the tireless Mr Murdoch is still around, but what happens after he's gone?