Murdoch outfoxes fund managers; Fund managers are scrambling to gain a reprieve from mandates that restrict them from owning companies without an Australian listing so they can retain their holdings in Rupert Murdoch’s 21st Century

Murdoch outfoxes fund managers

January 28, 2014

Elizabeth Knight

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Fund managers are scrambling to gain a reprieve from mandates that restrict them from owning companies without an Australian listing so they can retain their holdings in Rupert Murdoch’s 21st Century Fox, which has said it will quit its Australian listing.

Many Australian funds are not able to hold offshore-only listed companies and are attempting to get permission from trustees to allow them to hold the US-based pay TV and film business for another year to 18 months. This would allow them to undertake an orderly sell-down rather than dump the stock over the next six months before delisting.

The decision to delist 21st Century Fox in Australia is a big blow to the funds that have had enormous gains from the stock since its demerger from print operations. Local shareholders also have gained thanks to the devaluation of the dollar over the past year.

While there have been calls from smaller retail investors to have a selective buyback of 21st Century shares owned by Australians, it is likely to fall on deaf ears.

Australian fund managers say there was no suggestion at the time the demerger was being marketed that 21st Century might be delisted in Australia. But it beggars belief that the question was not broached by large local investors.

Murdoch’s history of treating his minority shareholders with disregard is legendary. It includes moving the old News Corp domicile to Delaware and creating two classes of shareholders – voting and non-voting – and loading up the family with voting stock.

Australian investors in 21st Century Fox want to retain their exposure to the growth engine within the Murdoch empire and are less inclined to retain the print operations that are structurally challenged. But given that Murdoch’s family has the biggest voting block in both companies there is little chance of the delisting of 21st Century Fox being defeated. 21st Century Fox defended the move, saying that because it had only limited operations in Australia it believed consolidating the trading in its stock in the world’s largest equity market (the US) would create efficiencies and improve liquidity.

The decision leaves many Australian institutional shareholders marooned – a group that (together with local retail investors) holds 26 per cent of 21st Century’s voting stock. Meanwhile, 21st Century Fox is getting on with the business of pursuing its growth ambitions – the chatter being that it will revisit its attempt to take out the minorities in BSkyB, a move that was thwarted a few years ago when the phone hacking scandal reached fever pitch.

The poor behaviour of the British newspapers was behind a move against the old News Corp being considered unsuitable to buy additional control of the UK pay TV assets. But the newspaper assets are now divorced from 21st Century Fox. While Murdoch controls both, there is no smoking gun that connects Murdoch to the decisions made at News of the World to tap the phones or message banks of British citizens.

At this point, Murdoch’s underlings – and in particular Rebekah Brooks – are the subject of police investigations and court action. If she does not implicate the Murdoch family, then 21st Century Fox could get the green light to take out the minorities in BSkyB.

Ringing in change

It has been speculated that one of 21st Century Fox’s rivals for ownership of BSkyB could be Vodafone. Given Murdoch’s company owns almost 40 per cent of BSkyB, the chat is fairly idle. But it does bring into sharp focus what the shareholders of Vodafone Australia intend for the future of this loss-making operation.

Bill Morrow is about to leave the management ranks – he is renowned as one of the company’s best international fix-it operatives. His replacement has been drawn from the Vodafone international family, rather than a world search of telco operatives.

Morrow had notched some success in improving the Australian company’s poor status as third in the three-horse local market. But his initiatives have not yet fed through to improved subscriber numbers or profits.

His replacement is Inaki Berroeta, who previously ran Vodafone’s Romanian operations. This suggests Morrow’s strategic plan will continue. But it raises questions about whether the telco’s owners will continue to pump money into this market given the losses sustained.

There has been plenty of chat around whether Optus and Vodafone’s owners have the stomach to fight Telstra in the Australian market. A price war would be enormously damaging to all players, which appear to be more amenable to fighting the battle on service.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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