Is the time ripe for Rupert Murdoch to take News Corp private?
The company has around $US5 billion in tax losses to use in Australia, the United States and the United Kingdom that will all but ensure the company will only have to pay corporate tax on the rarest of occasions. Such a deal could be done with a couple of other major shareholders, such as the company’s newest voting shareholder, Southeastern Asset Management, and a long-time supporter of Murdoch, Saudi Prince Al-Waleed Bin Talal.
Analysts now point out that News is now effectively controlled by Murdoch, who owns just over 39% of the voting shares, Southeastern, which controls just over 11.2%, and Bin Talal, who has just under 7%. Together they control around 57% of the company, which was valued at $US9.68 billion (at Monday’s closing price of $US16.76).
The three could pledge shares in a privatisation instead of taking cash, and News could easily be taken private around $US20 a share, which would value the company at around $US12 billion. Instead of borrowing the full amount, the three major shareholders would only need around $US6 billion.
Such a privatisation would secure the company for the Murdoch family, especially sons Lachlan and James and daughter Elisabeth. An unknown factor is if Rupert Murdoch’s looming divorce from Wendi Deng throws a spanner in such a deal, especially if there is a fight over the share out of the 21st Century and News Corp shares in the family trusts.
But News Corp is ripe for the plucking. It has no debt as a result of the split, around $US15.6 billion in assets, and will have $US2.6 billion in cash by the time 21st Century Fox pays the remaining $US247 million in cash, promised at the time of the split, within the next week or so.
The big write-downs in the value of the papers in Australia and the UK is said to have “right sized” the business in terms of asset values. Fox Sports Australia is in the balance sheet at more than $US1.5 billion (which helped give the company a “profit” of $US506 million in the year to June 30). A privatisation move would help explain why Southeastern Asset Management recently bought its voting shares.
Southeastern has a record of hooking up with other people to launch big deals — it joined with US billionaire investor Carl Icahn to have a tilt at the Dell computer company but abandoned that bid when Dell founder Michael Dell and his backers won the day.
Funding the $US6 billion or so in cash would be easy for News Corp and the Murdochs. The accounts show an ungeared balance sheet, and around $US6 billion or so in debt would only take the gearing to a conservative gearing of just under 50% of assets. The $US2.6 billion in cash would assure any lenders nervous about the company’s future and the weak newspaper assets. Cash flow isn’t as solid as some investors would like, but if more cash is needed, then book publisher Harper Collins could easily be put up for sale. The biggest problem is the lack of a significant growth asset. There is one, but Foxtel is only 50% owned, and forcing Telstra out of its half interest in the pay TV group would be a major objective of the Australian side of the company. Foxtel has a lot of debt, but that could be restructured, or left inside the pay TV company to minimise its taxable income.
However, the big attraction are the company’s huge tax losses. In fact they total more than $US5 billion in various types of tax losses, mostly in Australia and the UK because of the asset impairment write-downs in 2012 and 2013. Most of these losses can be carried forward “indefinitely”, as the News annual report reveals:
“As of June 30, 2013, the Company had approximately $1.0 billion of net operating loss carryforwards available to offset future taxable income in various jurisdictions. This includes $407 million in Australia (which is only available to offset taxable income of certain acquired subsidiaries) and $217 million in the U.K. both of which can be carried forward indefinitely, $281 million in various other foreign jurisdictions (which are only available to offset taxable income of certain businesses) of which $16 million are subject to various expiration periods and $265 million of which can be carried forward indefinitely, and $101 million in various U.S. state and local jurisdictions which are subject to varying expiration periods.”
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