Re: NCP dives 4.5%
Financial Review
"Funds undecided on News vote
Sep 17
Ben Power
News Corporation's plans to relocate to the US state of Delaware received a lukewarm response from fund managers yesterday after further analysis of the company's information memorandum heightened concerns about corporate governance and the possible erosion of shareholder rights.
The concerns come as it was revealed that News Corp chairman Rupert Murdoch received a massive $US12.5 million ($18 million) bonus on top of his $US4.5 million salary last financial year.
The company on Wednesday released an information memorandum on the US relocation proposal ahead of a shareholder vote on October 26.
Independent expert Grant Samuel & Associates said the shift was in the best interests of shareholders, but the directly measureable benefits were "limited" and it warned of short-term share price volatility and "lesser protection for shareholders, especially minority shareholders".
Analysts said that while Mr Murdoch's US plans were largely on track, corporate governance issues were being taken seriously by shareholders.
BT Funds Management portfolio manager Scott Maddock, who has not declared how he will vote, said shareholders now had "something concrete" to guide them, "as opposed to inferences".
"The independent expert has come to the conclusion which I think most people would have come to already, that the benefits to News Corp and its shareholders of a shift in domicile are at best ambiguous," he said. "Consequently the benefits of voting for the move must come from other areas which are relatively hard to find in the information memorandum."
Another fund manager said: "Delaware is a bit of a nightmare for us [Australian institutions], but the Americans are quite used to it - more than half the S&P500 are incorporated there."
Still, "I doubt there will be enough concerned votes to overturn the whole deal as most see the greater good being part of the US."
News Corp has said if it loses the vote it will look at alternatives.
A major concern is the ability in Delaware for the News Corp board to issue stock with superior voting rights without existing shareholder approval.
"The proposal to empower directors to potentially issue super-voting stock is a substantial power in our view," JP Morgan analyst Oliver Ansted said.
Credit Suisse First Boston analyst Jolanta Masojada said a key disadvantage was "the ability of directors to issue new shares that potentially could rank ahead of the Class A or Class B shares in every manner and the loss of protection under Australia's more stringent takeover requirements."
A News Corp spokesman said it would remain listed on the Australian Stock Exchange and rights attached to the new stock required ASX approval.
"We don't have in mind ... a so-called 'super-voting' stock," he added.
"The differences between the two regimes are very, very thoroughly laid out in the documents that shareholders are yet to get," he said. "If we think there's a need for some sort of further disclosure [on corporate governance] we will consider that" but, "we're not of that view at the moment."
Analysts said that in Delaware News Corp would be able to attempt to stop a takeover through a "poison pill" shareholder rights plan or stock issuance.
Delaware law also does not include compulsory acquisition provisions, and makes it harder for shareholders to remove directors, while preferred stock will also lose liquidation preference and existing dividend preference.
Analysts said News Corp's $2.95 billion buyout of Queensland Press, which Grant Samuel declared "fair and reasonable" was no longer a big concern.
Meanwhile, the News Corp annual report revealed Mr Murdoch received an unchanged $US4.5 million salary and $US12.5 million bonus in 2004, against a $US7.5 million bonus in 2003."
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