What’s Rupert Murdoch and the family up to at 21st Century Fox? The company hasn’t bought back a share for a month – that’s the longest period in more than a year when the share buyback wasn’t conducted.
The latest was on May 6 and the $18 million or so worth of non-voting shares purchased on that day took the total amount bought back to more than $US9.7 billion.
The lack of any buyback hasn’t hurt Fox shares – they have traded in a band of around $US1 or so and closed at $US35.10 on Thursday night in the US.
A total of 436.5 million shares have been bought back since mid July 2011, when the buyback was reactivated to support the share price as the then News Corp came under enormous pressure over the News of the World phone hacking scandal.
The buyback, plus the split in the company 11 months ago, have helped support the price of 21st Century Fox as the company restructures itself and spends billions on a new cable sports channels across the US to take on ESPN.
The company’s 39.1% owned BSkyB is engaged in talks aimed at merging Murdoch’s European satellite TV businesses in Italy, Germany and the UK – a move that will be cash neutral at worst for Fox. Fox will receive cash from BSkyB for its 57% stake in Sky Deutschland and 100% owned Sky Italia.
That will enable Fox to support any fund raising by BSkyB. At the same time Fox is in talks to shuffle its Shine TV production business off into a joint venture with Endemol and Core Media, which are owned by buyout group and hedge fund, Apollo.
Fox had $US5.5 billion in cash on hand at the end of the March quarter, down $US1.4 billion from a year earlier. Fox shares closed at $US 33.81 in New York overnight, only 3% or under their all time high of $US35.19.
So there is no reason to support the share price. Murdoch certainly hasn’t run out of cash and the best bet is that the company is conserving cash to make sure it has enough in hand to support BSkyB in the satellite TV rationalisation move in Europe.
But there have also been a number of mergers proposed in the US pay cable industry in the last two months (Comcast buying Time Warner Cable and spinning off some of the subscribers to Charter) and AT&T buying DirecTV.
The value of those deals between them is close to $US100 billion. The merged companies, if the deals are approved, will further dwarf 21st Century Fox’s $US77 billion market value (more than double). Believe it or not, Murdoch’s empire is danger of being left behind in US terms.
Disney has a market value of more than $US144 billion, Comcast, $US134 billion (which could rise by another $US40 billion from the Time Warner Cable deal) and ATT, worth $US183 billion (buying DirectTV would lift it close to $US220 billion). The European satellite TV business could lift 21st Century’s Fox’s value to around $US90 billion at a pinch, still well short of the big three.
Almost a decade ago, News owned 30% of DirecTV and for all intents and purposes, controlled the then much smaller satellite broadcaster. But in the great John Malone hostage settlement, Murdoch sold that and some regional networks and cash to buyback the 18% stake in News’ voting shares that cable mogul, John Malone had assembled through his Liberty Media group.
That ended Murdoch’s US satellite TV ambitions and forced him to spend more heavily on his free to air and cable businesses, especially Fox News, which turned into the financial (and some would say intellectual) heart of News Corp, and now 21st Century Fox.
These massive mergers in cable will strengthen the power these giants have over cable only companies such as 21st Century Fox. Murdoch needs to bulk up. The two Fox Sports channels will cost more than $US1 billion (probably closer to $US2 billion when add on, such as buying control of the Yankees TV business in New York) are included.
These big cable/Telco companies are bulking up to take on the likes of Google, Apple and Netflix, plus others still to come. News Corp is looking a little exposed without the bulk and spread of media interests (especially delivery systems, such as satellite, broadband and wireless) that the likes of Comcast and AT&T have and are growing.
In a speech in the US last month, Fox co-chief operating officer, James Murdoch indicated the company wasn’t going to be hurried into the European satellite deal, and he seemed relaxed about the consolidation of the US cable industry.
Usually companies justify the buyback as an effective way of returning cash to shareholders when they don’t have anything better to do with the surplus funds. As well company boards tell shareholders the buyback is a demonstration of faith in the value of the company as an investment – if the company won’t invest in itself when it can, it sends a bad message to the wider market.
So why has one of the steadiest buyers of its own shares in 21st Century Fox, stopped buying those shares?
