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News Corp has the corporate governance of the New York Times. But it lacks its valuation multiple. And so the hedge fund Starboard Value says the House of Murdoch must drop the former to get the latter. The governance that apparently works for the “Gray Lady” does not, it says, for News Corp.
Starboard on Monday sent a letter to News Corp informing the company it would put up a non-binding shareholder proposal asking the company to collapse the dual-class voting structure that allows the Murdoch family to control 41 per cent of the vote with just 14 per cent of the economics.
The subtext is what could happen if the Murdochs complied. A year ago, Starboard put out a presentation showing that the company’s grab bag of media assets — Australian and US real estate listings, book publishing and the Dow Jones media company that owns the Wall Street Journal — traded at a sharp discount as a bundle.
But if Dow Jones simply approached the valuation multiple of the New York Times, News Corp could trade up 50 per cent, Starboard said at the time. As it is, the New York Times is publicly traded but controlled by the founding Sulzberger family, who own a small economic stake.
Much has happened in the last year. REA, the Australian real estate media business has had its shares jump by a third, implying that News Corp’s 61 per cent stake is worth $11bn. Shares of News Corp in the past year are up a third and its enterprise value is $18bn.
In this sense, News Corp shareholders have done well while Starboard’s sum-of-the-parts maths is still valid, showing a sharp theoretical discount. The New York Times trades at 20 times trailing ebitda. Applying that multiple to Dow Jones profits implies a valuation of about $10bn.
The strong operating performance comes at a time of an apparent Murdoch family feud. A court case could determine which children of Rupert Murdoch get what assets. Corporate governance experts do not like disconnects between economic interests and voting control. But sometimes they will tolerate dual-class shares if they “sunset” at a specified time.
The New York Times maintains its dual-class protects the editorial integrity of its news coverage, particularly through difficult times.
It may be that the Murdochs have some attachment to specific News Corp businesses or simply like the idea of being in control for perpetuity. They have made their peace with leaving some money on the table. Understandably, cold-hearted Wall Street does not feel the same.
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