News Corporation's Persistent Pursuit of Control

Rupert Murdoch's determination to maintain his family's control over News Corporation has led to another innovative capital structure proposal. The announced plan to issue participating preference shares, or participating pref shares, is the third attempt to create a securities structure that will preserve family control without hindering growth. This time, the prefs have shareholder approval, granted in 1990, and conform to the Australian Stock Exchange's listing rules. By establishing the prefs through a bonus issue, News Corporation will ensure liquidity and market depth, as the terms of the issue guarantee that the securities will find their own market value.

Key Takeaways:

• The proposed participating preference shares (prefs) will enable Rupert Murdoch's family to maintain control of News Corporation without requiring new capital to support its growth.
• The prefs will have limited voting rights, effectively making them non-voting shares, and will have a realizable value, allowing the Murdoch family to sell them for ordinary shares or cash out their holdings.
• The creation of prefs enables News Corporation to contemplate issues of ordinary equity in the future, contingent on market conditions.
• The one-to-one relationship between prefs and ordinary capital poses no risk of breaching ASX limits, allowing News Corporation to raise more than $5 billion via preference share issues.
• The market may assign a discount to prefs relative to ordinary shares due to their non-voting characteristics, but the prefs will have a realizable value.
• The Murdoch family can potentially "siphon value away" from ordinary shares to prefs, reducing their economic value, but there are practical disciplines on this strategy to avoid harming market liquidity.

Statistics:

• The prefs will have a face value of 7.5 cents per share, compared to the ordinary shares' 3 cents per share dividend rate.
• The one-for-two bonus issue terms of the pref shares will create a deep market and minimize dilution from new share issues.
• News Corporation can potentially raise more than $5 billion before breaching the one-to-one ratio between prefs and ordinary capital.

Sources:

• News Corporation, "Bonus Issue of Participating Pref Shares" (no date provided).
• Australian Stock Exchange, "Listing Rules" (1990).

*-wsj article, "News Corporation's Proposed Share Issue Faces No Obstacles" (no date or author provided).