Content

Secure News Buying Out Fox

1/16/2005 7:00 PM Eastern

News Corp.'s proposal last week to buy the 18% of Fox Entertainment Group it doesn't already own came as little surprise, but the timing signals News chairman Rupert Murdoch is unconcerned about any looming takeover threat from Liberty Media Corp. chief John Malone.

Malone, chairman of Liberty and a longtime Murdoch confidant, shocked News Corp. and the analyst community in November when Liberty announced a deal with Merrill Lynch International that would increase its voting stake in News Corp. from 9% to 17%. That deal was completed in December.

PILL FOR COMFORT

While Liberty said the transaction was merely a financial move, some observers took it as a signal that Malone would attempt a takeover of News, or would use the voting stake — second only to Murdoch's 30% — as leverage to force an asset swap between the two media giants.

News Corp. implemented a poison pill days after the Liberty announcement that would trigger if any individual tried to buy more than a 15% voting stake in the company.

Murdoch has shrugged off speculation of a falling out with Malone — although some close to the company have said the chairman was surprised by Liberty's move — and has said publicly that he had no fears that Malone would attempt buy more voting stock.

He apparently backed that up with the Fox tender offer.

Most analysts had expected News Corp. to wait six to nine months before making the Fox tender, when the company could get a better price for the shares. Now, most analysts expect News Corp. to raise its offer for Fox, although News has said its offer stands.

In a research report, Lehman Bros. analyst Vijay Jayant wrote that the tender offer was “a little low.”

In his report, Jayant said that News Corp. could offer a premium as high as 14.8% without it being dilutive to earnings.

According to the deal, Fox shareholders would receive 1.9 shares of News Corp. stock for every Fox share they own.

The deal, valued at close to $6 billion, represents a 7.4% premium ($33.54 per share) to Fox's trading price on Jan. 7 and a 16.9% premium to Fox's six-month average trading price.

Fox shares surged on the offer, which has been expected for months. Fox shares were up 9.8% ($3.06) on Jan. 10 to $34.28. The stock stayed steady at $34.27 on Jan. 12.

News Corp. stock, which dropped nearly 3% (38 cents) to $17.85 each on Jan. 10, rose slightly to $18.06 on Jan. 12.

The deal has been expected since News Corp. reincorporated in the United States late last year. News Corp. owns 82% of Fox's outstanding shares and 97% of the company's vote.

LOGIC IS GONE

News Corp. sold 18% of Fox Entertainment to the public in 1998, mainly as a way to drive value into the News Corp. stock by giving the media giant a U.S.-based security that could be purchased by institutional investors — News Corp. was an Australia-based company until the domicile shift to Delaware in December. “Since the reincorporation of News Corp. into the United States, the logic for Fox really no longer exists,” News Corp. chief financial officer David DeVoe said on a conference call with analysts.