Paul McIntyre: Murdochs face down critics

COMMENT


Rupert Murdoch has faced many a battle in his long media career but he might not have predicted the fight he is waging to move News Corp's headquarters from Australia to the American state of Delaware.

On Thursday Murdoch sent his son Lachlan in to bat with fund managers in Sydney to try to assuage concerns that shareholders in the media conglomerate might see their rights swept aside by the company's planned move. By all accounts the lunch session got pretty feisty.

At this stage News Corp has refused to budge or offer any concessions over the structure of plans to adopt a new constitution, which effectively allows the Murdoch family to cement control of the company.

In his own paper, the Australian, on Thursday, the same day his tapdance with institutions took place, Murdoch junior said: "As of today the best sense I have is that we have the majority of our Australian institutional investors very much behind us."

He uttered those words, of course, the previous day before they were in print and before he had actually met local stockmarket jockeys. It was a different story at lunch.

Some analysts who met the young Murdoch said the level of cynicism directed at him was "quite high". BT Funds Management's Scott Maddock was there and he told the Sydney Morning Herald the main concern was whether the move would benefit News Corp's underlying performance.

BT has not decided which way to vote. The main shareholder protection provisions to go with News Corp's move across the ocean is the takeover threshold requiring a full bid if someone acquires more than 20 per cent of the stock, the need for shareholder approval for any issue of differential voting shares, and the need to get the nod from shareholders in related party transactions.

This week News Corp faced even stronger resistance to its proposal from the Australian Council of Superannuation Investors and advisory firm Corporate Governance International. They are proposing a no vote if those key Australian investor protection measures mentioned earlier are not transferred to News Corp's US constitution.

News Corp's argument so far has been it would disadvantage the company by having to comply with a higher level of governance than other US-based companies.

The independent expert's report on News Corp's Delaware move by Grant Samuel & Associates has already said the company's relocation would result in "lesser protection for shareholders, especially minority shareholders" and the Australian Shareholders Association said corporate governance would be "somewhat diluted". But in the end Grant Samuel did approve the move.

News Corp has already vetoed the proposal from the the super investors and corporate governance.

The super group has the backing of other big institutional investors, including the British Hermes funds and the largest pension fund in the US, CalPERS. But it still remains doubtful at this stage if the large investors in News Corp will have the stomach to knock back the proposal when it goes up for vote at the company's shareholder meeting in a few weeks.

Some analysts suggested this week that News Corp might win the support of institutional investors if it amended its constitution to absolutely rule out any chance that "super-voting" stock could be issued without shareholder approval.

Murdoch has succeeded for years in maintaining a minimum level of corporate governance, and while there has been plenty of fury vented in the media towards his new shareholder constitution, it would be surprising if the professional investment community stood up to the media baron.

The Financial Times in London has suggested that Murdoch has promised to strengthen disclosures on corporate governance to calm the fears of shareholders.

Murdoch's lawyers are no doubt working on proposals now that will allow the company to get the bulk of its proposals through, without losing the controversial takeover provisions that will make it nearly impossible for a hostile bid for the company to be launched.

Although the institutions are claiming concern, minority shareholder rights are less important for them.

The big guns are more worried that the value of their holdings in News Corp could fall once the stock is listed in the US.

The young Murdoch this week labelled News Corp's critics hypocritical in their claims that his family was trying to entrench control of the company while at the same time saying it would also help the Murdochs offload their stake.

"Our critics have to make up their mind," he told the Australian.

"On one side they are saying we are trying to entrench our position and on the other they are saying we are trying to sell our position.

"The truth is both assumptions are inaccurate and we are trying to do the best thing for our shareholders."

Very soon, we will know if the financial world believes him.

* Paul McIntyre is a Sydney-based journalist