News Corp. Announces Poison Pill

Rupert Murdoch’s News Corp. (owner of DirecTV, British Sky Broadcasting, Fox Entertainment and News International newspapers) is feeling unnerved. It seems Liberty Media is increasing its stake in the company to 17% from 9.1%. With Mr. Murdoch and his family controlling just under 30%, talk of a takeover quickly arose. Although John Malone, Liberty's chairman and controlling shareholder, has told Mr. Murdoch he isn’t moving on News Corp., Mr. Murdoch has put a “poison pill” proposal out to prevent just such an event. Clearly, the plan is good for those named “Murdoch,” but for others, the jury is still out.

When Liberty decided to buy up more News Corp. stock, the latter put out a statement that read in part, “This action was taken without any discussion with, or prior notice to, News Corporation. For this and other reasons the company has put in place a rights plan to protect the best interests of all shareholders.” In the event a predator puts together a 15% stake in News Corp., the plan allows all other shareholders to buy one share for each share held at a 50% discount. It amounts to an 8-1 rights issue, and the hostile acquirer can’t participate in it.

In the event that the 15% threshold were crossed, and if all shareholders acted to acquire the maximum number of shares permitted, Liberty Media’s voting stock would amount to no more than 2% of News Corp. The theory is that the mere existence of the proposal will prevent the takeover – good old deterrence theory.

However, there is another consideration, and that is the effect that such a proviso has on demand for the stock in the first place. Knowing that a 15% stake is the cap before one’s holding is diluted, Liberty may find that holding News Corp. stock is less attractive than before. Indeed, Mr. Malone may decide to get rid of some of it. Perhaps a sudden dumping of shares might get Mr. Murdoch’s attention.

Here is yet another example of how shareholders are not always best served by their management. The poison pill keeps the Murdoch name attached to News Corp., but it caps the demand for stock. That, in turn, holds prices down, which is exactly the outcome shareholders don’t want.


© Copyright 2004 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.


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