April 6 must have been a dark day Down Under. Since Midnight Oil broke up and Paul Hogan stopped making Crocodile Dundee movies, Australia's undisputed, unofficial ambassador to the northern world has been the beloved and bejowled Rupert Murdoch (Russell Crowe doesn't count; he's actually from New Zealand).
Never mind that Murdoch became a U.S. citizen 1985, or that the vast majority of his News Corporation revenues are generated in the United States. Through it all, News Corp.'s registered office remained at good old 121 King William Street in Adelaide, the town where Murdoch got his start in the “reporting, not deciding” business in 1952, when he took over a newspaper his father owned.
G'day to all that. As soon as shareholders and regulators sign off on the deal, News Corp. will cut its remaining ties to the fatherland and move its corporate headquarters to the United States -- to Delaware, with its favorable corporate environment, to be precise. While News Corp. will maintain listings on stock exchanges in Sydney and London, its main listing will now be on the New York Stock Exchange, where it is already traded.
News Corp. wants to move its mailbox in order to get better access to markets, so it can sell stock at a higher price. Many institutional investors, like pension funds, face limits on how much foreign stock they can own, and with an Adelaide HQ, News Corp. stock is currently subject to those limits. That hasn't prevented two of the biggest public pension funds, CalPERS and the New York State Common Retirement Fund, from owning a combined 18 million News Corp. shares. But other funds may indeed have been put off by the Aussie address. Moving to the United States also means that News Corp. might be included in various stock indices, making its shares more appealing to investors who want to track those indices.
But in essence, News Corp. wants its props: Its foreign status, Murdoch once said, “is a prime reason our stock trades at a discount to some of our peers, despite our very strong financial performance in the past few years.”
Pride is only part of it, though. A higher stock price means a lower cost of capital. A lower cost of capital means News Corp. can own more things. And News Corp. likes to own things, from 20th Century Fox films, FOX News, and FOX Sports channels to TV Guide, Direct TV, newspapers on three continents, and even Australia's National Rugby League.
But moving to the states won't be an effortless act. As part of the reorganization, News Corp. is going to buy the outstanding shares of a company called Queensland Press Limited, which owns several Australian newspapers. News Corp. already owns more than 40 percent of Queensland, and Murdoch son Lachlan runs it. The rest of Queensland is owned by Cruden Investments, a firm in which Rupert Murdoch has “beneficial and trustee interests.”
At the same time, Queensland owns 15 percent of voting News Corp. stock; Cruden is the top owner of the company's common stock. Murdoch's family will be given stock to compensate for the purchase of the Queensland-owned newspapers, which News Corp. will own. Basically, Murdoch's company is buying, from a Murdoch trust fund, a company run by Murdoch's son, which invests in Murdoch's company. I hope he doesn't get screwed in the deal!
News Corp. insists that the wheeling and dealing will not increase the Murdoch family's share of voting stock, though the clan will now hold more of its shares directly rather than through Queensland and Cruden.
The move to the United States also raises the possibility that Murdoch will be the target of shareholder activism, as domestic media conglomerates like Disney have been targeted. Some of the American institutional funds Murdoch is hoping will buy News Corp.'s U.S.-based stock have bylaws requiring a certain amount of “social investing.” Murdoch was a target for at least one shareholder revolt in the United Kingdom, where some stock owners last year tried and failed to prevent James Murdoch from taking over the BSkyB satellite-television provider.
But while Murdoch's media outlets in the United States may offer content that some pension funds (especially those run by liberal-Democrat-backing labor unions) find objectionable, funds also have to pick stocks that offer value, especially in a choppy market and particularly as the pace of retirements picks up. And it's hard to ignore News Corp.'s third-quarter results, which show net profits of $465 million -- or $190 million more and 69 percent higher than the same period last year.
On Wall Street, the announcement of the pending move jazzed News Corp. stock prices briefly, but then they sagged along with the rest of the New York Stock Exchange. But on the Sydney exchange, News Corp. prices soared. Maybe it's Australian investors' lasthurrah for their famous mate, a sort of farewell shrimp on the Barbie. Or maybe, as Australian Foreign Minister Alexander Downer, asked if he was sad about the imminent departure, put it, “It's a business, not just an emotional outfit.”
Jarrett Murphy is a reporter living in New York who has written on politics and business for The Hartford Advocate, City Limits magazine and CBSNews.com.
Citizen Rupert is a regular column tracking the business dealings of media mogul and international man of mystery Rupert Murdoch.
