Friday, April 20, 2012

#Leveson Inquiry : Riding The News Corp Tiger by Mike Mangan

I have never heard of a listed company that is solvent suspending voting rights. Maybe it’s happened before, but even for 'corporate governance'-challenged News Corporation, I think this is a first.
The gerrymander
News has unilaterally suspended 50 per cent of the voting rights of non-US shareholders who own voting shares. The rationale is to ensure it retains its US Fox TV license, a condition of which is that News is less than 25 per cent foreign owned.
News recently 'discovered' its actual foreign ownership is 36 per cent. By unilaterally reducing the voting rights of these shareholders by half, foreign voting ownership falls to 18 per cent. Highlighting the urgency of the situation, no shareholder vote is apparently needed.
All else being equal this lifts the voting interest of the Murdoch’s family from 39.7 per cent to 48.4 per cent. However the Murdoch family has "generously" offered to cap their actual votes to 39.7 per cent of the voting shares “not subject to the suspension”. I calculate this still gives the Murdochs 43.5 per cent of the remaining eligible votes.

But what if only 75 per cent of the non-Murdoch voting shares are actually voted? Then the Murdoch family’s vote rises again from 43.5 per cent to over 50 per cent. Voila! An unintended consequence which just happens to be a pretty good outcome if you're worried about board control.

This initiative creates three classes of shares. Voting shares allowed to vote (the important ones), voting shares with suspended voting rights ('no soup for you') and, of course, the infamous non-voting shares. Even after almost 206 million ($US3.6 billion) non-voting shares have been bought back, they still represent 67 per cent of News Corp outstanding more