Rupert blinks as the ISS giant awakes

Rupert Murdoch has a real fight on his hand to get shareholder approval for his controversial move to America and he has back-flipped at a rate of knots. Here are some of our updates that have been emailed to subscribers recently.

From the first October 7 sealed section

here.
It will be probably be enough to see shareholders approve the controversial proposition at the October 26 shareholder meetings in Adelaide, so Rupert is happy to eat a bit of humble pie to get what he wants.

All those Murdoch loyalists such as Bryan Frith, Terry “HMV” McCrann and even son Lachlan are looking pretty stupid today after they ridiculed the original proposals which have now been largely adopted.

The Australian takeover law provides good protection to minority shareholders and Rupert has agreed to keep them after US proxy giant ISS received a two hour briefing from the Australians on why our takeover laws are so good. The only major area Rupert has refused to move on is on related party transactions, but most of the key Australian takeover provisions will now be retained.

Therefore, Rupert can’t sell more than 19.9 per cent of his voting stock without all shareholders gettting the same deal, he can’t issue super-voting shares and he can’t increase his stake by any more than Australia’s “three per cent every six months” creep provisions.

A shareholder with just 5 per cent of the stock can call a special shareholder meeting in Australia and Rupert has agreed that someone with 20 per cent could do that in the Delaware registered company.

Rupert needs court approval to make these amendments and Crikey would love to see one of the Australian institutions ask the court at the same time to prevent Rupert from voting open proxies in favour of the scheme as this represents a major conflict of interest.

See how the commentators lined up today:

Bryan Frith says News has come under attack from corporate governance bodies and that it could probably satisfy most of the corporate governance criticisms by simply formally adopting its previously stated intentions to seek shareholder approval to incorporate in the US.
Stephen Bartholomeusz notes that after weeks of pouring scorn and derision on critics of the detail of News Corporation’s proposed transfer of domicile to Delaware in the US, that company has abruptly given ground, in a backdown that represent a major victory for the shareholder activists.Malcolm Maiden writes that it was only when News was told at by the American governance adviser, ISS, that US institutions also wanted some of the Australian governance standards preserved that it knew its strategy had to change. As long as the corporate governance push was confined to Australia, News would have done its own thing.

Meanwhile, it is interesting to look at the background of those doing the negotiations with Murdoch on behalf of the institutions. Rather than it being the top end of town, the two men in the front line of the ACSI negotiations are Michael O’Sullivan and Phil Spathis.

O’Sullivan is an old DLP Grouper who is still national president of the ASU whilst Phil Spathos is a lawyer who came out of the Finance Sector Union.

It is an interesting overlay when you consider that every Murdoch paper in the country is backing the re-election of John Howard and the unions are still so closely affiliated with the ALP.

Rupert blinks as the ISS giant awakes

From the first October 6 sealed section

Rupert Murdoch’s brazen attempt to relocate to dodgy Delaware is in big trouble and the world’s most powerful man has blinked. This morning News Corp issued this one paragraph statement to the ASX saying that it was now considering changes to its constitution:

“News Corp confirms that it is giving consideration to changes to the constitution of News Corporation Inc to further strengthen its corporate governance provisions. When a final decision is made on these matters News Corp will inform the market.”

What was the sequence of events here? Rupert engaged in two months of talks with a group of Australian institutions and proxy advisers led by Sandy Easterbrook from Corporate Governance International. The institutions proposed putting the best of Australia’s corporate governance provisions into the News Corp American constitution and Rupert gave them the big two-fingered salute when he released the 374-page information memorandum last month.

The various Murdoch lackeys such as Terry “HMV” McCrann and Bryan Frith predictably came out against the institutions and were quick to point out what small shareholdings in News Corp the various advocates had.

The big change came when Institutional Shareholder Services, the dominant US proxy advisory service, were given a detailed briefing on the wonders of Australia’s takeover laws.

ISS then made it clear to News Corp that it could not see any reason that US shareholders should surrender these takeover protections. Why would you allow Rupert Murdoch to sell his 29 per cent voting stake in News Corp to John Malone or some other predator without the rest of the shareholders being made the same offer?

It will only take one or two of the big US shareholders – and Capital and Fidelity are the two biggest – to vote the deal down and these big boys all listen to ISS.

Therefore, it looks like the Australian minnows have got in the ear of ISS and this has finally brought Rupert Murdoch to the table, but this makes the October 26 meetings look a bit messy as Rupert would presumably have to send out some supplementary material after getting court approval.

The story broke this morning through Chanticleer columnist John Durie in The AFR. However, there were still some troubling aspects in Durie’s commentary which was head-lined “News will move come what may”.

It included the following line: “The bottom line is this: News Corp is going to the US and even with any changes to its constitution it will be governed by the Delaware rules, as it should, and any attempt to load it with Australian rules is a nonsense.”

This is just wrong. News Corp cannot go to America unless its shareholders approve it and at this stage they ain’t going anywhere.

Meanwhile, if you look at the voting patters at last year’s News Corp AGM, the non-Murdoch vote was about 770 million which was a high turn out of about 50 per cent.

The way the corporate action is put together – if these turnout numbers remain stable, we’re forecasting about 200 million votes are required to defeat the proposal and Australian institutions have well in excess of these numbers.

Meanwhile, what will Rupert do with undirected proxies? The Information Memorandum suggests they will be voted in favour – but isn’t there a conflict here? Rupert can’t vote his own stock, but he can vote the undirected proxies on a deal where he has a large related party transaction as part of the gig?

Who controls the institutional voting?

A business journalist who wouldn’t invest in a Murdoch company if it was the last one on earth writes:

Crikey,

Your comment this week about 452 Capital’s Peter Morgan, his super fund clients and the vote on News Corp’s move to the US once again highlights the lack of transparency in corporate ownership today. Coupled with the illogical practice of share registers not being required to disclose the beneficial owners of a public company, it is well nigh impossible to know who is making voting decisions that affect a wide group of stakeholders in a company, including small shareholders, employees, suppliers, customers and other taxpayers.

This obsession with secrecy can only benefit company executives at expense of other stakeholders and is more of a corporate governance concern than whether Rupert gets to go Delaware or not.

Cheers, The Hack

CRIKEY: Thankfully, this is one of the changes in CLERP 9 and companies will have to disclose the beneficial owners of their shares. However, to demonstrate the stupidity of it all, here is the News Corp top 20:.

Further to the Peter Morgan comments we hear that he has a $550 million mandate from the large Australian Retirement Fund which has retained the power of voting rights.

Similarly, 452 Capital also manages a pile of money for Colonial First State and we would be surprised if Morgan had complete voting control of these funds. The Business Sunday claim that Morgan will be voting 20 million shares in favour of the deal is questionable.

The Packer empire certainly seems to be onside with Rupert’s planned departure but the Business Sunday story from just three days ago – Dissent fading for News Corp move – which relied on Morgan and the hopelessly conflicted Murdoch loyalist Bruce Teele is now looking pretty flimsy.

Murdoch spin, leaks and arm-twisting

Rupert Murdoch’s Australian spindoctor Greg Baxter has gone out of the frying pan and into the fire since making the move from James Hardie a few months back and he’s now in the eye of a storm about the leaking of negotiations over possible amendments to the News Corp constitution if the move to Delaware happens.

So who leaked this story of Murdoch’s belated backflip to John Durie in today’s AFR?

All sides are pointing the finger with News Corp accusing both American proxy advisory giant ISS and its Australian equivalent CGI of leaking the development when it now looks like they might have been behind the leak themselves.

Afterall, John Durie is a Murdoch favourite and he’s been in touch with both Rupert and Lachlan over the past few weeks. The front and back page AFR coverage today still had that flavour of “Murdoch’s going to prevail and these instos are process-obsessed crusaders”, so we suspect it might have been an inside job.

Rupert’s dodgy push polling

The News Corp proxy battle is firing up. Rupert has retained Georgeson Shareholder Services, the US-based proxy-solicitation business bought by Computershare last year, to help twist the arms of small and large shareholders alike.

One News Corp shareholder explains the approach being taken:

“Hi Crikey, I have just had a call from some youngster who is ringing shareholders on behalf of Rupert. He wanted to know if I had received the AGM/EGM voting material and pointed me to the pages which would tell me how beneficial the move to the US would be. He asked if I was planning to attend the meeting or send in a proxy and which way would I vote.

“I told him I was likely to give my proxy to Stephen Mayne of Crikey.com.au and he asked if this was my financial planner! Well, it is obviously some lad reading a script!

“Regards, Diana”

Whilst approaching the existing shareholders is obviously important, we are dealing with a fluid News Corp share register at the moment because hedge funds from all over the world are piling onto the register in anticipation of the move to America being defeated.

The funds are all betting the spread between the ordinary and non-voting shares, which has contracted from almost 15 per cent to just four per cent because the move to America will see the ordinaries dumped from the Australian indices whilst the non-voting stock will join the S&P 500 on the New York Stock Exchange.

It will be interesting to see if Rupert or anyone else gets into the business of Solly Lew vote buying as we reckon he’s going down and the hedge funds will contribute to his loss.