newscorp agm - crikey's fabulous report

  1. 18,561 Posts.
    Here's a free copy of crikey.com.au report on the just completed Newscorp AGM.

    Consider taking out a crickey subscription - it's only about $60 and it's a great source of uncompromised information. You get one or two email newsletters a day, and they need support.

    regards

    EVERY ANGLE ON THE HISTORY MAKING NEWS CORP AGM

    By Stephen Mayne
    Owner of 11 News Corp shares

    Hindley Street Net café, 3pm

    History was made at the News Corporation AGM in Adelaide today when the
    most powerful man in the world was rolled by his own shareholders on a
    proposal to issue his top executives $30 million worth of share options.

    This is the most dramatic rebuff by independent shareholders in recent
    Australian corporate memory.

    Rupert Murdoch did not disclose the size of the no vote but said it was
    dominated by Australian institutions whereas American shareholders were
    more supportive of a proposal to issue six executives the following
    options
    to buy non-voting preferred shares at $9.89 a pop.

    - Proposed Hughes Electronics boss Chase Carey: 500,000
    - Chief operating officer Peter Chernin: 1,000,000
    - Finance director David De Voe: 500,000
    - Younger son James Murdoch: 275,000
    - Older son Lachlan Murdoch: 375,000
    - General Counsel Arthur Siskind: 500,000

    The preferred shares closed at $10.40 last night so the six executives
    were
    already $1.58 million in front on the options before they were issued and
    there were no performance hurdles - a fact that riled Australian
    institutions who now regard hurdles as non-negotiable.

    Rupert Murdoch has been issuing in the money options to executives for the
    last three years and has faced no votes of between 30 and 40 per cent.

    In fact, at the moment there are 257 million options outstanding over
    non-voting shares and in 2002-03 3.446 million were exercised at an
    average
    price of $5.74 a share giving the lucky owners a combined paper profit of
    $16 million.

    The fact that a majority voted no this time says that Australian
    institutions and News Corp shareholders such as Colonial, AMP and the
    Queensland Investment Corporation have come of age.

    The two Australian proxy advisory services, CGI and SIRIS, are believed to
    have advised clients to vote the scheme down and they did precisely that.
    It was always going to be the most contentious vote of the AGM season but
    a
    defeat really is a shock.

    There was an issue as to whether Rupert could have voted the 626 million
    shares he controls through Cruden but because he was technically able to
    join the options scheme it was decided he shouldn't vote them. Besides,
    his
    two sons were benefiting so it would not have been appropriate to vote
    them.

    There was stunned silence at the meeting when Rupert revealed that he'd
    been rolled on an issue at News Corporation for the first time in 50
    years.
    But after declaring resolution 5 had been withdrawn he then soldiered
    straight on to the next resolution dealing with a $1.2 million increase in
    the maximum fees payable to non-executive directors.

    After the Australian Shareholders' Association (ASA) got up to support the
    increase, Crikey stepped forward to put some perspective on what had just
    happened and told the meeting this was a historic day and that the rolling
    of Rupert was a coming age for corporate governance and Australian
    institutions.

    We asked for more details on the vote but Rupert declined and, as usual,
    declined to tell the meeting the proxy votes on any of the resolutions.


    The voting results are now up on the ASX website here:
    http://asx.com.au/asxpdf/20031015/pdf/3jcrgkm5zm0t7.pdf

    This year Rupert placed his 626 million shares in the discretionary
    section, so the for and against figures give a good indication of the
    non-Rupert voting - with all four directors up for re-election receiving
    about 94 per cent of this vote.

    RUPERT AND HIS INDEPENDENT DIRECTORS

    Rupert was attempting to confine debate to each resolution so Crikey then
    asked whether directors would be getting a pay rise, especially the new
    supposedly independent chairmen of the audit, remuneration and nomination
    committees.

    Rupert told us to wait for next year's annual report and that this would
    be
    a matter for the newly constituted remuneration committee. Why no
    disclosure immediately?

    The only other formal business, which was dealt with at the start of the
    72
    minute meeting, was the re-election of 4 directors. Rupert gave a 15
    minute
    address before this, which included a couple of minutes explaining how
    seriously the company took corporate governance. There are now no
    executives on any of the new board committees but, despite Rupert's
    claims,
    this does not make them independent.

    Crikey gave a 3-4 minute spiel about the board composition when we first
    moved to re-elect Lachlan Murdoch but Rupert moved to shut down debate as
    he wanted all general questions delayed until the formal business had been
    dealt with.

    But we persisted and made the following points:

    * News Corp only has 2 or 3 genuinely independent directors on a 16-man
    board (70-year old retired Finnish paper executive and nominal independent
    Aatos Erko has just resigned due to ill-health), being former Southcorp
    CEO
    Graeme Kraehe, 71-year-old American Tom Perkins and former Phillip Morris
    chairman Geoffrey Bible who probably doesn't qualify due to his close
    personal friendship with Rupert.

    * If News Corp was serious about corporate governance the independents,
    and
    especially the chairs of the new board committees would have turned up at
    the AGM. The four directors up for re-election included Lachlan Murdoch,
    fellow executive Arthur Siskind, Rupert's long-time investment banker
    Stanley Schuman and Tom Perkins.

    You'd think the only independent up for election would show up but Perkins
    was nowhere to be seen. The new Business Council of Australian AGM
    guidelines state that board committee chairs should be available to answer
    questions at AGM. It was therefore unfortunate that nomination and
    corporate governance committee chair Geoffrey Bible failed to show up as
    did Andrew Knight the new chair of the remuneration committee which
    presumably approved the 80 per cent salary increase for the three Murdoch
    executive directors to a record $28 million last year.

    We also made the point that former executives should not be treated as
    independent directors and Knight was unsuitable to chair the remuneration
    committee given he'd made an estimated $80 million from Rupert's
    extraordinary generosity with share options back in the days when Knight
    was the key door opener into Maggie Thatcher's office.

    Rupert responded by saying that News was looking for "at least two new
    directors" and would strive to find "the very best people in the world".

    FRIENDLY JOUSTING

    We had a friendly little joust leading into this debate when Crikey
    revealed he held proxies over $10 million worth of shares "and 11 mill,
    sorry 11 shares".

    Rupert jokingly said he would allow one question for each 5 shares and I
    then said this should include the proxies, prompting an instant "no" from
    Rupert.

    Once all the formal business was dealt with we had a record 12 different
    shareholders get up and ask questions.

    One lady blamed STAR TV for causing crime and civil unrest in the
    Himalayan
    state of Bhutan and a visiting journalist from the Launceston Examiner,
    Michael Lowe, wanted to know why the dividend was so low and what Rupert
    thought about media diversity in Australia.

    Lowe did not disclose he scribbles for John B Fairfax's Rural Press but he
    has been a News shareholder for 20 years.

    The dividend question was raised several times and we finally got a
    concession from Rupert that he would consider lifting it this year if
    profit projections are met. Yippee, could this be the end of the miserly
    3c
    a year regime which has remained in place regardless of whether News makes
    $2 billion or loses $12 billion.

    Crikey suspects Rupert keeps dividends to a minimum because he'd have to
    pay tax on them and therefore prefers tax-free capital gains because
    Cruden's shareholding dates back to September 1953.

    Incidentally, Rupert claimed that anyone who invested 85 pounds when News
    shares were first available would now be sitting on $6 million worth of
    shares.

    It would be interesting to compare this with Frank Lowy's Westfield claim
    that a $1000 investment in 1961 is today worth more than $150 million if
    you reinvested all the dividends.

    HISTORY AND RETIREMENT

    Whilst Lowy put out a special book marking Westfield's 40th birthday and
    had a gala dinner at The Westin in Sydney attended by the PM and four
    Premiers, Rupert noted that 50 years had just elapsed since he took
    control
    of the Adelaide News in 1953 but he wasn't even aware of the milestone
    until someone in Australia (presumably that Mark Day column) pointed it
    out.

    There's no time for milestones or history at News Corp as Rupert told
    shareholders that he was driven by worrying about "operations for the next
    50 years".

    This was one of several comments by Rupert alluding to his longevity and
    intentions to stay in the job forever. When Crikey asked a question about
    the $891 million unfunded staff superannuation scheme and how much was set
    aside for his own retirement, he wryly observed that "I probably won't
    have
    any because I will be carried out".

    Asked about any retirement plans in the press conferences after the
    meeting, the slightly hard of hearing 72-year-old declared "absolutely
    not".

    NEPOTISM AND ONE VOTE ONE VALUE

    The superannuation question was the first raised by Crikey in the general
    question period and the last contribution to the meeting after this dealt
    with the James Murdoch nepotism issue at BSkyB and Rupert's unique
    two-tiered voting system.

    It was disappointing James was a no-show given the current controversy
    about Rupert's desire to parachute him into the CEO's chair at BSkyB.
    Crikey cited all the figures about the Murdochs only having a 6 per cent
    economic interest in BSkyB which was a $30 billion company that needed an
    experienced CEO, not someone who'd never worked in Britain and only had
    3-years experience running STAR TV in Hong Kong.

    Rupert was coy and simply said the board was considering candidates and
    James "would either be confirmed or rejected by the board". Amazingly, he
    claimed the decision "had nothing to do with any one shareholding (er,
    doesn't News' 35 per cent stake have a big impact?) and I have nothing
    further to say.

    Later at the press conference he claimed James had turned around arguably
    the most difficult pay-TV situation in the world. STAR didn't quite get
    the
    boosterism afforded to the new Italian pay-TV monopoly (a "shining jewel"
    before long and profitable in 18 months) but Rupert was full of praise for
    James whilst also pointing out Lachlan ran divisions that produced 60 per
    cent of the total profits.

    On the second question of one vote one value Crikey got a laugh by
    declaring even Joh Bjelke Petersen would be proud of a system where 70 per
    cent of the shares on issue couldn't vote.

    The non-voting stock started at less than 30 per cent of the total almost
    10 years ago but Rupert has been dumping his own holdings and issuing
    truckloads of new non-voting shares to fund an array of takeovers.

    If the Hughes Electronics takeover is approved the non-voting stock will
    rise from 62 per cent to almost 70 per cent of the total.

    Crikey asked that we return to one-vote one value but Rupert said this
    wouldn't happen any time soon as the system had "created terrific value"
    because of "permanence of management" (ie the Murdochs can expand without
    losing voting control).

    Rupert also claimed that almost every major media company outside
    Australia
    had a similar structure.

    On the same theme, Adelaide PR socialite Di Carroll, asked that we return
    to the pre-1991 model when News Corp had an independent chairman, albeit
    Rupert's old Geelong Grammar school mate Richard Searby QC.

    The Murdochs and Searbys have since fallen out and Rupert politely
    declared
    he had no plans to change the current system with him as executive
    chairman. And what about this: "I consider myself to be independent and
    responsible to shareholders and I have no plans to change that,
    unfortunately."

    How can Rupert Murdoch be independent of Rupert Murdoch? This is the
    point,
    Rupert should not be able to make this decision and would not be able to
    if
    News had one vote one value that left Rupert as the second largest
    shareholder after John Malone's Liberty Media with 15 per cent.

    Rupert told the meeting, Liberty would be taking up another pile of
    non-voting shares tomorrow and that Malone could never join the board due
    to conflicts but he believed News Corp was the most under-valued media
    company in the world. With an 18 per cent non-voting stake worth $12
    billion he would say that.

    Rupert got mildly annoyed with the whole corporate governance debate,
    talking about the "many hours" they'd spent sorting through the committee
    issues and eventually he told any malcontents that "if you are not
    satisfied then look for something better".

    PAY TV AND SUPER LEAGUE

    Other highlights of the meeting included Rupert lamenting the "botched"
    introduction of pay-TV in Australia but expressing confidence the
    conversion to digital will finally make Foxtel profitable.

    The 25 per cent stake is in the books at $217 million and the 50 per cent
    NRL stake, a by-product of the need to deliver content to Foxtel, is
    valued
    at $160 million. News Corp has sunk an estimated $700 million cash into
    both ventures.

    Asked in a classic Dorothy Dixer if he felt the ABC got too much from the
    taxpayer, Rupert got plenty of laughs when he said words to the effect:
    "From what I can tell yes they are vastly overfunded".

    THE NEWSPAPER TRAINING GROUND

    Older executives who lament the day that television replaced newspapers as
    News Corp's biggest division would have been delighted to hear Rupert
    emphatically ruling out ever selling his Australian and UK papers or the
    New York Post. Did he ever say that about New Zealand? He excitedly
    claimed
    the New York Post was close to becoming the biggest selling paper in The
    Big Apple and once these figures were confirmed by formal audits the
    advertising dollars and eventual profits would flow from this perennial
    loss-maker now run by former Daily Telegraph editor Col Allan.

    Rupert then explained that newspapers were a great executive training
    ground and he had old Aussie print men (ie Les Hinton in England) in
    senior
    positions around the globe. Rupert reckons newspapers create executives
    "full of competitive spirit" and trains them to be "sensitive to public
    taste". Hmmm, Les Hinton must enjoy the page 3 girl bonanza in the UK.

    THE PRESS CONFERENCE

    There were about 50 journalists who stayed for the post-AGM press
    conference where there was only tepid questioning on the options defeat
    and
    nepotism.

    We even had Bloomberg wanting predictions on the US dollar but Rupert said
    he didn't know because "I only know what I read on Bloomberg, sorry!"

    He was pretty cheeky throughout the morning but at one point told the
    press
    he hoped they would treat some of his AGM comments as jokes, which is what
    they were.

    About 15 journalists got questions in over about 20 minutes at the press
    conference but Rupert is so hard of hearing he had to ask for most of them
    to be repeated.

    The Australian's Jane Schulze is generally pretty independent but her
    second question got a bit grovelly: "Is it the case that there will be no
    need for major acquisitions over the next 10 years because the template is
    so perfect it is hard to improve?"

    Jane's colleague and fellow South Australian Michael McGuire lobbed a
    question about sporting rights and probably laments the fact The Oz closed
    down his excellent weekly "sports business" page.

    Rupert pointed out that NBA basketball had already left free-to-air for
    cable and this could happen with other US sports which would be "extremely
    controversial". He said "football" (not sure if this was gridiron or
    English soccer) was producing "wonderful revenues" but News would probably
    only continue with baseball if it paid a lower price.

    The cost of sports rights would keep falling unless some new entrant came
    along and paid over the odds to build a business, a bit like what Fox did
    in the 1990s as it built the fourth network.

    Crikey had planned a question about Fox News but Rupert managed to lodge
    his tongue in his cheek and gloat about the wonderful "fair and balanced"
    offering.

    The plane leaves in one hour so we'd better wind this up but it will be
    very interesting to see how the News Ltd papers report the egg all over
    Rupert's face over the executive options.

    Will they quote him talking about "some sort of crazy misunderstanding" as
    Rupert claimed to be genuinely surprised and moaned that the Australian
    shareholders hadn't raised it with the company before hand. Hmmm, might be
    time for News to hire an Australian-based investor relations manager.
    Garry
    Ginsberg can't do the whole thing from New York as the Australian
    investors
    feel he is too remote.

    The simplest solution is to stop issuing in the money options without
    hurdles but Rupert gave a stern lecture about his determination to meet
    the
    market and hire the best people in the world.

    Ironically, the press conference wrapped up rather quickly after Michael
    Pascoe cheekily asked Rupert if he regarded both his sons as qualifying
    for
    this "best in the world" category.

    Naturally, Rupert agreed but then it was off to the South Australian State
    Library for the ceremonial opening of the new newspaper reading room
    funded
    by this great South Australian company that took over the world.

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