Rupert Murdoch is set to gradually lose control of the board of News
Corporation, according to the assessment of a detailed analysis by a
leading media analyst seen by Crikey.

The assessment – which
comes in the wake of a series of controversial moves inside News, and
is made in the context of last week’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 that 71% of News voting stock is
    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.”

  • 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 “left News nearly 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 voters (1,043 million
    total needs to buy back 400 million at $25.00 or $10 billion). “He has
    not been good at self preservation historically, and may be forced to
    buy back equal amount of non voters (class A) – making it an
    unaffordable ($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 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 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.”