Rupert Murdoch has lost control of the board of News Corporation. That
is the astonishing assessment of a detailed analysis by a leading media
analyst that has been presented to several major Australian
institutions over the past two weeks.

The assessment – which
comes in the wake of a series of controversial moves inside News, and
is made in the context of yesterday’s Crikey report that three leading
fund managers believe the News Corp share price would rise when Rupert
Murdoch died – makes these key points:

  • With the continued presence of US media investor John Malone on
    the News Corp share register, and given the 71% of News not held by
    Rupert Murdoch, “the control of the Board has now passed.” Malone can
    cause a situation where Murdoch is still CEO, but reports to an
    independent board. “It’s over – he has lost control.”

  • Rupert Murdoch has potentially lost board control because of the
    simple mechanics of 29% for Murdoch and 18% against for starters.
    Although Murdoch will likely remain CEO, “progressively the Board
    members will be voted by institutions and Malone. This is what has
    happened in BSkyB,” and gradually board control will rest with
    independent directors. “Even the children will be more independent than
    has been the case in the past.”

  • The option of buying Malone out of News Corp has failed. “The
    Malone greenmail would have cost $6.1 billion @ $26 per share or $7.0
    billion @ $30 per share but Malone has simply not accepted these as he
    sees $33-$34 per share in the same time span.”

  • Malone won’t necessarily force Murdoch out of the company and run
    it himself, but Murdoch has been “self defeating in the protection of
    his own interests from divorces, family, and dilution.” Murdoch’s
    children have “deserted him lock, stock and barrel” – it was “an
    inconceivable failure of succession planning that Murdoch has left the
    domicile of Australia and the protection of the Federal Treasurer’s
    signature on non parliamentary FIRB rulings (as long as NWS remained an
    Australian domiciled company) into a Malone raid.”

  • The “poison pill” introduced by the News Corp board to stave off
    a takeover is “mutual suicide – can never be triggered by either
    without destroying either – mutually assured destruction.”

  • Murdoch’s only chance is a buyback of voting shares (1,043
    million total needs to buy back 400 million at $25.00 or $10 billion).
    “He has not been good at self preservation historically, and may be
    forced to buy back an equal amount of non voters (class A) – making it
    an unaffordable ($A20b).”

  • News has slipped out of the grasp of the Murdoch children. While
    their 29.9% is worth $7 billion, that is split 90% into 4 equal parts
    (Prudence, James, Lachlan, and Elizabeth) = $1.6 billion each. But
    there is now only one child left in business – James at BSkyB. Lachlan
    has left, Elisabeth has left, and Prudence was never in it. The kids
    won’t to hang around 10-15 years – “they want to make their own mark
    now and want their own businesses and life.” For one of the children to
    get on top they would need to gear $1.6 billion into $6.4 billion
    –”just not on” – and If Wendi “does an Anna Nicole Smith on Rupe and
    gets her two kid’s 10% up to equal status to the previous 4” then it
    becomes a 5X gearing for one of the kids to gain control – “NWS has
    gone for the kids.”

  • Corporate governance and gearing will change at News. “Buyback of
    voting shares by NWS (needs to spend $9.3 billion for selective buyback
    of voters only) to seal family dominance until Murdoch dies, or buy
    back of associate company interests.

  • Allowing a duplicate Australian and Delaware takeover protection
    regime to be established implies that Murdoch has “no cash flow of any
    significance, having sold QPR, and is reliant on the NWS to finance
    stock buybacks of voting stock. Murdoch is in no position to take any
    further defence actions from his personal finances.”

  • The poison pill “rights” represents a massive equity issue and
    the Murdoch family would not want to have to spend US$32b to maintain
    their interest in NWS. “They simply do not have that money and the
    biggest shortfall will from the Murdoch family interests. The bluff
    between Malone and Murdoch is such that Murdoch could not afford to
    lose control of the company to such a bluff which would then leave NWS
    available to any predator.”