Dual to the death

Rupert Murdoch's M&A arsenal loses some firepower

The Murdoch discount may yet turn into the Murdoch premium.

Time Warner thwarted an $80-billion advance by Rupert Murdoch's Twenty-First Century Fox earlier this year in part by denigrating the non-voting stock that he was offering. Now, the independent owners of sister company News Corp have protested loudly over the dual-share structure there. Greater attention on the media mogul's weak governance standards could be costly in future deals.

Opposition to Murdoch's dynastic reign was underscored last week. At the annual meeting for News Corp, the newspaper and online real estate division spun off last year, a stockholder proposal to eliminate the dual-class capital structure received support from nearly half the shares voted.
 

The tally suggests only the Murdochs and their ally, Saudi billionaire Prince Alwaleed bin Talal, opposed the idea. What's more, those votes were necessary to secure the election of all 12 board nominees, including Rupert and his sons Lachlan and James. Without them, they would have received less than a majority.

The company's adoption of a poison pill may have given momentum to the uprising this year, as News Corp itself noted. Even so, Murdoch has faced opposition from owners of his second-class shares in the past. And safeguards against an unwanted buyer may be less of an issue than the consequences to Murdoch's own acquisitive aspirations.

Time Warner boss Jeff Bewkes and his board called out the "significant risk and uncertainty as to the valuation" of the non-voting stock Fox proffered in its July bid. For its part, News Corp in September used cash rather than its stock, which currently trades at nearly 30 times expected earnings for the next year, to buy property listings website Move for $950 million.

In the aftermath of the phone-hacking scandal at a Murdoch tabloid newspaper in Britain a few years ago, a big gap opened between the market value of his media conglomerate and the sum of its parts. Splitting the company, returning capital to shareholders and some merger discipline has helped close the Murdoch discount. When he calls on rivals with a takeover proposition, however, the stock's value recedes again. Using second-class paper in a deal may force his companies to pay more than they would if all the shares carried the same vote. That might soon be known as the Murdoch premium.