City: Murdoch plan won't wash with shareholders

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The Independent Online
IN HIS public statements, Rupert Murdoch often refers to the need to balance 'discipline' and 'daring' in News Corporation's affairs. He might also have added a number of other ingredients. How about 'cheek' and 'shamelessness' for starters?

Recently, Mr Murdoch's two-year love affair with international investors seems to have come badly unstuck once more, as the perceived combination of discipline and daring that has driven News Corp shares to record highs has given way to a growing feeling of irritation. The cause? Mr Murdoch's plan to create a new class of super-voting share, going against all principles of shareholder democracy and good corporate governance.

Not that you would have guessed this by reading a pathetically feeble 'consultative' document on the issue published last week by the Australian Stock Exchange. Why on earth the ASX feels the need to consult on such a cut and dried affair at all is beyond me, but in any case rather than dismissing the proposal out of hand - as it should have done - a good proportion of the document is devoted to the arguments in favour of this shameless piece of financial hocus pocus. The ASX bent over backwards to understand Mr Murdoch's point of view. The plan might encourage management commitment, counter short- termism by investors and induce the company to issue equity rather than debt securities, the ASX gushed. Yes, well . . .

News Corp is the ASX's second most heavily traded stock, and Sydney has much to lose from Mr Murdoch's implied threat to delist and take his business elsewhere. That certainly accounts for the less-than-vocal opposition to the plan from Australian stockbrokers. International investors, however, are proving altogether less spineless, and Mr Murdoch can expect a monumental uproar if he tries to proceed.

Few details of the plan are yet known, but broadly speaking it is to issue super-voting shares on a pro-rata basis to existing ordinary shareholders. But as if that's not bad enough, here's the really clever bit. If you sell those shares they lose their super-voting rights and become ordinary shares once more. In a heavily traded stock like News Corp, Mr Murdoch - who owns 32.7 per cent of the shares - would thus gain creeping control. He could issue new shares without diluting his own position. Shareholders should be in no doubt about the effect of this proposal; it will entrench a management that - though it might seem inspired at the moment - could in time become incompetent or worse. The markets will build this into their calculations in valuing News Corp shares; according to one analyst, it would knock at least 5 per cent off the price. Unless Mr Murdoch can find a quite unexpected way of sweetening the deal, it seems unlikely that shareholders will approve it; but then no doubt he's figured out a way of avoiding a vote on the issue anyway.

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