Without outside approval, Murdochs won’t hack re-merger of family companies

Unless the Murdoch family can come up with a large enough financial inducement, the suggested re-merger of the family companies, Fox Corp and News Corp, looks a big ask and is in fact in doubt.

News Corp made it clear in its September quarter filing this morning that without the approval of independent directors and non-family shareholders, the marriage won’t happen.

In October 2022, the Company announced that its Board of Directors (the ‘Board’), following the receipt of letters from K Rupert Murdoch and the Murdoch Family Trust, has formed a special committee of independent and disinterested members of the Board (the ‘Special Committee’) to begin exploring a potential combination with Fox (the ‘Potential Transaction’). 

The letters indicated that Mr Murdoch and the Murdoch Family Trust will not vote in favor of a transaction unless it is both recommended by the Special Committee and approved by a majority vote of the shares held by non-affiliated stockholders entitled to vote.

The Special Committee, in consultation with its independent financial and legal advisors, will evaluate the Potential Transaction. The Special Committee has not made any determination with respect to the Potential Transaction, and there can be no certainty that the Company will engage in the Potential Transaction. Neither the Company nor the Special Committee intends to disclose further developments regarding the Special Committee’s work until it deems such disclosure is appropriate or required.

In the post-results release analysts brief, News Corp CEO Robert Thomson made it clear there would be no answers to any questions on the briefing about the re-merger idea.

With only 14% to 15% of the total capital, the Murdoch family trust and its beneficiaries would lose any straight vote, so they need the support of the non-voting shareholders.

So the non-family directors need to approve it — that’s what the special committee is looking at and the “non-affiliated stockholders” are those holders of the voting and non-voting shares — the latter are in the numerical majority and will decide the issue seeing how the family holds few of those securities.

Non-Murdoch Fox Corp shareholders don’t seem to want to have the old linear media businesses back in the fold, and some News Corp shareholders do not want their business tainted by being remarried to the company that owns Fox News Channel.

But independent directors and shareholders could be swayed if the Murdoch family trust wants to pay for all the costs of the re-merger or subscribe for new shares to help boost the finances of the new combined company — in effect to help refinance the new-look family company.

Revenue fell 1% to US$2.48 billion in the quarter while analysts were expecting US$2.5 billion, which was no great prediction seeing that was the actual figure for the same quarter of 2021-22.

Net income for the quarter was US$66 million, down 75% decline from the US$267 million in the September 2021 quarter.

Directors got to the core of the weak result, blaming an increase in costs, “partly due to inflationary pressures, lower revenues, and a $23 million, or 6%, negative impact from foreign currency fluctuations”.

Dow Jones, though, was the star. It had its best quarter since being acquired. Seeing that was back in 2007, it has taken successive News Corp boards and management 17 years to get it right, and in that time there has been one common factor: the oversight of the Murdoch family in its various forms.

Dow Jones is no longer just The Wall Street Journal, a news service and odds and sods. It includes close to 4 million digital and other subscribers, and businesses, magazines and websites (Barron’s and MarketWatch.com) the oil news business OPIS, and the just-acquired Chemical Market Analytics. As well Dow Jones has a rapidly growing risk and compliance business that provides advice and help to dozens of American businesses, large and small.

Dow Jones revenues were up 16% and EBITDA was up 19%. It stood out as the real estate operations in the US (Move) and Australia (REA Group) saw tougher times from weakening property prices and home building. Foxtel saw more subscribers overall but there was a small dip in the number of people taking the Kayo streaming business, and household subscriber numbers fell from a year ago. The Binge streaming service saw a solid rise and Foxtel has well over 4.5 million subscribers all told. But revenues and earnings growth were weak and hit by currency translation effects.

Book publishing (Harper Collins mostly) took a hit from currency and higher energy cost but the biggest blow was Amazon’s move to “reset of its inventory levels and rightsizing of its warehouse footprint which resulted in lower order volume and higher returns, despite consumer sales data remaining consistent with prior quarters”.

The shag on the rock was the news media business — the Australian and UK newspapers, and bits and pieces in the UK such as radio and TV. Revenues fell 4% to US$553 million, thanks to the weakness of the UK pound and the Aussie dollar against the stronger greenback. EBITDA fell to just US$18 million from US$34 million.

In the quarter, Segment EBITDA decreased $16 million, or 47%, compared to the prior year, reflecting lower revenues, as discussed above, and a $2 million, or 6%, negative impact from foreign currency fluctuations. The decline was also due to over $20 million of higher costs related to TalkTV and other digital investments, higher newsprint, production and distribution costs across the businesses and higher employee costs, partially offset by cost saving initiatives.

The positive contributions from News Corp Australia and the New York Post were more than offset by the negative contributions from News UK and Wireless Group and negative foreign currency fluctuations.

That sounds like another restructuring is on the horizon for both the UK and News Corp Australia to bring costs and revenues back into balance. That usually means a lot of job losses.