Rupert Murdoch's $5 billion share repurchase plan of News Corp. shares is equal to 12% of News Corp's $42 billion market cap. As the Murdoch family has 47% voting control, this $5 billion move could be the first step in taking out the public shareholders -- and ensuring that the media and entertainment empire stays in the control of his children. Clearly, the $5 billion share repurchase would give the insiders over 50% of the vote in running the empire.
He could afford this move since the plan to buy-in the other 61% of BSKYB is a non-starter and may remain an impossibility, given the hostility of the UK government and establishment. So, whatever excess cash flow is created by not making the offer to BSKYB shareholders -- and whatever cash could be raised by selling perhaps the British newspapers -- could be employed to take out the mutual funds and investment managers like Mellon and BlackRock who aren't going to see any solid long term results from News Corp. any time soon.
This strategy makes sense because Murdoch has clearly never had as his top priority creating value for other shareholders. Far from it. His priority has been the aggrandizement of media power the past 11 years, especially by vastly overpaying for the Wall Street Journal. A massive write-off of over $2 billion was the result. Never you mind; Murdoch controlled the Wall Street Journal.
Here's the recent narrative history of News Corp. shares. News Corp. shares fell from $30 a share in 2000 to $10 a share during the dotcom bubble -- and then got back to $25 a share in 2006 before falling to the ridiculously low $4.00 a share in early 2009 -- just $1.00 more than the $3.00 a share basement price for CBS -- which has climbed back to the $28 level.
Basically, over the past 11 years News Corp. has gone from $30 a share to its current $16-$17 a share level. Rupert Murdoch, you have to know, does not necessarily prioritize his value for shareholders. You would have been a lot better off buying Viacom, Sumner Redstone's media and entertainment empire. Holders of News Corp. stock lost almost half their investment if they bought at the peak.
The time to own News Corp. was the decade between 1990 and 2000 when the stock rose from the low single digits to $30 a share. You never see or hear Murdoch addressing the intrinsic value of his stock, or appearing before security analysts to promote it.
Today the issue is the extent of the damage to the franchise from the illegal and unethical doings of many top brass of News Corp. -- including possibly James Murdoch, Les Hinton and Rebekah Brooks. It is impossible to weigh that massive unknown against the $5 billion buyback of shares, which will retire some 12% of the company's equity and basically give a clear majority vote to the Murdochs. With the newspaper empire under fire, and only a minority position in BSKYB, it's bloody tough to figure. My feeling is that News Corp. is badly tainted, and the future cash flow from papers must necessarily decline steadily.