News

Murdoch Aim: U.S. News

4/11/2004 8:00 PM Eastern

News Corp. said it will reincorporate as a U.S.-based company, a move that could substantially increase the amount of institutional investment in the media giant.

According to News Corp., existing shareholders will swap their voting and nonvoting shares for newly issued stock on a share-for-share basis. The move basically wipes out News Corp.’s American Depository Receipts, currently traded on the New York Stock Exchange, and replaces them with a new NYSE-traded stock. The new shares will also be traded on the Australian Stock Exchange.

The reincorporation will have no effect on News Corp.’s operations and is expected to be closed by the end of the year.

MORE LIQUIDITY

The impetus behind incorporating in the U.S. is to give News Corp. better access to capital and to make the stock more liquid — institutional investors that had been limited by their own policies on buying foreign issues would be able to increase their investments in News Corp. substantially. It would also allow News Corp. to become part of an index, such as the Standard & Poor’s 500, which would also make it more attractive to institutional investors.

News Corp. chairman Rupert Murdoch said a on Tuesday morning conference call with media and analysts that of the top five media investment firms, three — Barclays PLC, State Street Corp. and The Vanguard Group Inc. — are index funds.

“The highest investment any one of them have in this company [News Corp.] is $4 million,” Murdoch said. “In contrast, all of them, their minimum investment in Time Warner [Inc.], [Walt] Disney [Co.], Viacom [Inc.] and Comcast [Corp.] is $900 million. That shows you the sort of stakes we’re playing for.”

Vanguard spokesman Brian Mattes said that if News Corp. is placed on an index like the S&P 500, Vanguard would have to invest in it. By nature, index funds buy all of the stocks in an index, relative to their weighting in that index.

“If a stock is weighted at 3.279% of the S&P 500, then they would represent 3.279% of our S&P 500 Index fund,” Mattes said.

Mattes said that it is also likely that if News Corp. becomes a U.S. stock, it would become part of Vanguard’s Total Stock Market Index Fund, which buys about 4,000 to 5,000 of the 7,000 publicly listed U.S. stocks.

As of March 31, he said, the Vanguard S&P 500 fund had $97 billion in assets and the U.S. Stock Market Fund had $47 billion in assets.

Greater institutional participation should close the gap between News Corp.’s voting ADRs (traded under the symbol NWS) and its more widely traded nonvoting ADRs (traded under the symbol NWS/A). In the past, the spreads between the two classes of stock had been as high as 27% in 1996. The current spread is about 12%.

That gap is starting to close already.

News Corp shares rose slightly on the news, up 55 cents each in 4 p.m. trading April 6 to $37.43 per share. News Corp.’s ADRs were up more than 6% ($2.14 per share on Tuesday to $35.03 each.

Murdoch added that News Corp. has been contemplating the U.S. incorporation for a while, and was spurred to action by Liberty Media Corp. chairman John Malone.

Liberty, which owns a 17% interest in News Corp., recently swapped some of its nonvoting shares for voting stock in the media giant.

“This is something that Dr. Malone urged on me several months ago,” Murdoch said. “I think they’ll do very well by it. They should be very happy.”

As part of the deal, News Corp. will acquire the 58% it doesn’t already own of Australian newspaper published Queensland Press Pty. Ltd (QPL), which has a 15% interest in News Corp. By acquiring the rest of QPL, News Corp. also prevents further dilution of Murdoch’s voting interest in the company. According to News Corp., the Murdoch family’s 29.87% voting stake in News Corp. will be reduced slightly.

The share exchange must still be approved by shareholders, and News Corp. is also waiting for a favorable tax ruling from the Australian government.

Although the exchange should be tax-free (rules that would allow that were promulgated in 1999), Murdoch said that because of the size of the transaction, News Corp. wants to make sure it has the ruling in hand before going ahead.

FOX ROLLUP?

Some analysts have speculated that News Corp. would buy in the rest of Fox Entertainment Group, which is publicly traded separately. News Corp. already owns 82% of Fox Entertainment, which includes the Fox Broadcast network, cable networks FX and Fox News Channel and the 34% controlling interest in DirecTV Group Inc.

Fulcrum Global Partners analyst Richard Greenfield wrote in a report that he expects a Fox buy-in within 12 to 24 months.

Murdoch said on the conference call that there were no immediate plans to bring Fox Entertainment into the fold.

“We don’t intend to do anything about Fox,” Murdoch said on the conference call. “We own 82%. There is no point in changing that.”

Pricing Spreads (NWS and NWS/A)
DATE NWS NWS/A SPREAD
Source: NASDAQ Web site
4/06 $37.43 $35.03 $2.40
3/05 $37.63 $32.76 $4.87
2/06 $36.62 $32.11 $4.51
1/06 $36.89 $31.04 $5.85

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