Street lures Oz-based conglom
This article was updated at 9:32 p.m.
NEW YORK — Almost 20 years after becoming a U.S. citizen, Rupert Murdoch announced plans Tuesday to transfer News Corp. from Adelaide to Gotham, making the New York Stock Exchange the global conglom’s primary fiscal residence.
Far from any deep-seated sentimental or cultural reasons, it is Wall Street’s seductive charms that likely inspired the company to weigh anchor from its Aussie roots.
Relocating holds out the prospect of a much wider customer base for News Corp.’s shares, access to cheaper capital and ultimately a more compelling valuation relative to its media conglom peers.
News Corp. has been an Australian company for tax and listing purposes (with only limited amount of American Depository Receipts traded in the U.S.), despite the fact that more than 75% of its sales, profits and cash flows now derive from its U.S. operations.
If all goes according to plan, Murdoch’s emporium of assets could become the fifth media conglom to join the vaunted S&P 500 index of largest U.S. quoted companies, alongside Time Warner, Viacom, Disney and Comcast.
Chief financial officer David DeVoe said the move of the parent company to a new U.S.-listed News Corp. stock simply “reflects the reality that despite its Australian incorporation, News Corp.’s profile is that of a U.S.-based global company.”
Joining Wall Street’s elite certainly has its benefits. The News Corp. chairman and CEO noted Tuesday that the highest level of investment in News Corp. among the top index-managed institutional investors such as Barclays, State Street and Vanguard is barely $4 million. By contrast, the minimum investment by those same companies in S&P 500 firms like Viacom or Time Warner is $900 million.
“That shows you the stakes we’re playing for,” Murdoch told analysts and investors on an early Tuesday conference call announcing the shift.
Murdoch’s worldwide media empire, which encompasses satellite, publishing, broadcast and pay TV businesses in Asia/Pacific, Europe and Latin America, intends to become a Delaware corporation in a tax-free stock swap by the end of 2004, pending regulatory approvals from the U.S. and Australia.
Under the deal, the Murdoch family’s voting stock stake will remain virtually even at 29.45% (down from 29.87%). The family’s stake in the company is worth roughly $6.6 billion.
Company will subsequently report all financial results only in U.S. dollars and under U.S. GAAP accounting standards.
Shifting the company’s primary domicile from Down Under to the Big Apple has three main advantages, DeVoe said: It should expand News Corp.’s shareholder base to a level enjoyed by rival media congloms like Viacom or Disney, thereby increasing the liquidity of its shares and also give the company better access to the U.S. capital markets should the company ever look to raise new funds.
Company indicated the move should ease big investors’ concerns about holding foreign company stock and the kind of preferred shares with which News Corp. trades in the U.S. under the symbol NWSA.
Murdoch told investors that while there would be no impact on company’s worldwide daily operations, the move would “dramatically expand” News Corp.’s shareholder base.
“Our global headquarters has for many years been in New York City, along with those of most of our peers,” Murdoch said. “We compete with those other media companies for the attention of investors on the biggest share market in the world: the $18 trillion NYSE.”
He believes investors’ inability to easily invest in News Corp. stock has been a prime reason the company trades at a discount to many of its peers, despite strong financial performance in the past few years.
With 840 million NWSA shares outstanding, analysts widely expect News Corp. to have a sufficiently high market capitalization to be a prime S&P 500 candidate. Inclusion would significantly boost demand, given the number of stock funds that invest in the index.
Company emphasized that News Corp. will not be leaving Australia entirely and that the company, which is among the most widely held stocks in that country, will maintain a local listing. Noting his company’s “proud and profound” link to Australia, Murdoch (a U.S. citizen since 1985), said the company’s “roots, heart and culture” are still “unmistakably Australian.”
There could be wider implications for the newly U.S.-based company however.
Analyst Rich Greenfield predicted that Fox, the separately traded U.S. entertainment vehicle controlled 82% by News Corp., could eventually be reabsorbed into the parent company in the next two years, though News Corp. sources denied there were any plans to do so.
Greenfield noted that News Corp., with its large array of overseas operations (BSkyB, Sky Italia, Star TV) at varying stages of maturity is a faster-growing business than its U.S.-centric Fox and any increase in value of the new U.S. shares could enable News Corp. to easily buy up the remaining 18% of Fox.
“Fox has essentially outlived its usefulness to News Corp.,” said Greenfield, who believes that without a significant acquisition on the horizon in the U.S., News Corp. does not need Fox as a transaction currency.
Murdoch dismissed the notion, saying he was “very happy with the way Fox stands at the moment,” and has “no plans” for any change. He also emphasized that the company does not have any major acquisitions in its sights, though “we remain opportunistic.”
Under the shift, News Corp. will also acquire Murdoch’s outstanding 58% stake in Australian newspaper business Queensland Press.