Why Rupert should have followed his own advice

Friday, 19 May, 2006

Stephen Mayne writes:

Rupert Murdoch’s call for John Howard to go out whilst he’s on top sounds pretty logical, but why wouldn’t Rupert take the same approach with his own tenure at News Corporation?

If John Howard makes his elegant departure in December, as Rupert’s great mate Piers Akerman has predicted, he’ll be 67. When Rupert Murdoch was 68 in early 2000, News Corp shares soared to their record high of $28 ($56 in today’s terms) as the dotcom bubble peaked. In hindsight, Rupert should have retired, appointed Peter Chernin as the new CEO and sold his family’s shareholding for a tax-free $20 billion.

Alas, Rupert just didn’t know when to get off the horse and today the family’s stake is valued at about $9 billion and he’s a dying breed of old world media moguls fighting the enormous challenges of the digital age. The Sun King has done a Thatcher and hung on too long.

The move to America in 2004 was supposed to put a fire under the News Corp share price which never materialised, partly because it was booted out of the Australian index and only the non-voting stock was included in the US S&P 500 index. This left us poor holders of the News Corp voting stock without representation in any index, when at the start of the process it was suggested we’d enjoy the double dipping benefits of being in both.

All of this ties in with yesterday’s announcement from the ASX and S&P that some foreign companies will be allowed to have a presence in our indices. Terry “His Master’s Voice” McCrann has today declared this to be “shutting the stable door — in this case after a $40 billion horse or so had bolted”.

McCrann has over-cooked the numbers in claiming local institutions had a $50 billion exposure to News Corp before it was booted out of the index. The Murdoch family and John Malone’s Liberty Media together owned about 25% of all the shares before the move and the company was only capitalised at about $75 billion, so on McCrann’s numbers this only leaves about $6 billion for the rest of the world. Bollocks.

The idea of reinstating Telecom NZ, Singtel, News Corp and Fisher & Paykel into all the Australian indices is odd to say the least, because they would displace some genuinely Australian-based companies.

What would make more sense is having a separate index in which weighting was based on the proportion of asset, revenue and profit that are based in Australia. Given we’ve sold most of the farm off to foreigners, this would mean the likes of Mitsui and Mitsubishi, which each own more than $10 billion worth of Australian assets, would also be included.

If 5% of News Corp’s profits come from Australia then 5% of its shares should be included. It was always bizarre having $20 billion-plus of Australian superannuation money riding on the vicissitudes of News Corp’s American and British operations, especially given that the operation was run out of New York. We should not return to this situation and it seems the ASX is just simply trying to make more money in the latest example of the conflict of interest that comes from being a profit-motivated exchange.