Bringing the New News in a brave new world
There is no solace for us in a $380 billion Reserve Bank bailout fund, which is the good fortune of ANZ, CBA, NAB and Westpac. Neither are we rusted together with the apparatus of state in the cosy shelter of a Marxist-Leninist monopoly, as is the delight of the ASX.
We don't pay 0.0001 per cent tax on each billion dollars of revenue like Google Australia, while they kindly unfurl our $40 billion broadband highway. No, we have our pride. You won't see a newspaper company putting on an Oliver Twist routine for corporate welfare dole-outs.
Over at rival sweat shop, Rupert Murdoch's News Ltd - where the commentary is more Dickensian than the labour conditions - the New Newscorp shares began trading this week, on a deferred basis. It's called New News because that's where all the old-world media assets reside, the newspapers.
And you could have knocked us down with a feather; all the New News columnists really loved the deal. Fancy that.
At 82, Rupert is determined to be the last man standing in newspapers. The Sun King has furnished New News with a war chest of $2.5 billion in cash, and no debt. Its assets, including Foxtel, The Wall Street Journal and newspapers in Britain and Australia (75 per cent of the market here), may be "ex-growth" but are veritably spitting out the cash.
Under the quid pro quo between Rupert and his US chief executive Chase Carey, News Corp's entertainment spin-off, 21st Century Fox, gets to trade on a higher multiple without the drag of old-world assets. Makes sense. The stock, now two stocks, beat the market this week.
Also, Carey and the US institutions were never going to countenance the allocation of capital to the rust belt of old media.
The note that was missing in the upbeat cantata from the Vienna Boys Choir of News Ltd commentators was the risk to earnings from hacking, bribery and perversion of the course of justice.
A settlement is expected shortly with the US Justice Department, mooted at $850 million, for alleged violations of the Foreign Corrupt Practices Act. The impending trial of Rebekah Brooks, and the potential fall-out from the Wendi Deng divorce, are the two other "known unknowns", though the latter should be quarantined from the stock.
The liabilities don't all lie with New News though. The newspaper group shoulders the criminal risk and Fox takes the civil costs. Even with the spectre of a few payouts then, and accounting for the mooted $300 million to $400 million in restructuring costs, New News has a handy balance sheet for Rupert's next round of acquisitions.
Big bucks for what?
What does $80 million in liquidators' and lawyers' fees buy you? Answer: Nothing.
The settlement, which was supposed to have been struck this very week, after five years, between Lehman Brothers Australia and the councils, churches and charities, has collapsed in a smoking ruin.
As if the sheer magnitude of the fees to the insolvency privateers from PPB were not grotesque enough, the deal collapsed due to the most extraordinary turn of events.
Even the lawyers themselves were calling it shameless. An operative from Lehman Brothers in New York, one Abhishek Kalra, had quietly bought some proofs of debt from another Lehman entity in Hong Kong a couple of weeks ago. These debts made Kalra a Lehman Australia creditor to the tune of $130 million, more than enough to derail the deal with the councils, churches and charities, which had toasted hundreds of millions buying Lehman's financial products.
Here's the catch: Abhishek Kalra was one of the Lehman investment bankers who concocted this toxic rubbish in the first place; including the infamous Federation CDO (collateralised debt obligation), which blew up in short order. Having been responsible for the losses of the not-for-profits, he has now scuttled their settlement in a sneaky bid to get a piece of it himself.
What did his lawyer, Philip Hoser from Jones Day, think about the ethics of this?
"There is no question of our client, Lehman Brothers Holdings Inc, or our firm, acting unethically or improperly in any way."
Why didn't PPB and its $30 million worth of legal advice see this coming? The councils, churches and charities bought more than $1 billion in toxics from Lehman during the boom, and quickly incurred huge losses.
Lehman bit the dust in September 2008, PPB was appointed liquidator of Lehman Australia.
Instead of doing a deal with the creditors they fought them all the way to the High Court. By last August they'd racked up $62 million in fees, of which $28 million went to law firms. The fees ratcheted up another $20 million as they prepared the scheme settlement.
Frequently Asked Questions about this Article…
The News Corp split separated old-world newspaper assets into a company nicknamed 'New News' while spinning off entertainment assets into 21st Century Fox. For investors this created two stocks: New News (newspapers and related assets) that is cash-generating but more ‘ex‑growth’, and 21st Century Fox, which can trade on a higher growth multiple without the drag of the newspaper business.
Rupert Murdoch reportedly funded New News with about $2.5 billion in cash and no debt, which gives the newspaper group a strong balance sheet. For everyday investors that can mean room for acquisitions or restructuring without immediate pressure to raise capital, though it doesn’t eliminate operational or legal risks.
The article highlights risks including alleged hacking and bribery, a mooted US Justice Department settlement around US$850 million under the Foreign Corrupt Practices Act, and high‑profile trials (for example, Rebekah Brooks). These contingencies can hit earnings and should be monitored by investors as part of the company’s risk profile.
The article notes potential restructuring costs in the range of US$300–400 million and allocates criminal risk largely to the newspaper group while civil costs sit with Fox. Despite those potential charges, New News was described as having a 'handy balance sheet', suggesting it can absorb some costs while still pursuing strategic moves — but investors should factor the restructuring hit into valuation.
21st Century Fox benefited from being a pure entertainment business that can trade on a higher multiple, free from the drag of legacy newspaper assets. US investors and institutions typically reward clearer growth profiles, while the newspaper business is seen as slower‑growth but cash-producing — hence different market reactions.
A proposed settlement between Lehman Brothers Australia and its creditors (councils, churches and charities) collapsed after an operative, Abhishek Kalra, quietly bought proofs of debt that made him a creditor for about $130 million and derailed the deal. This matters to investors and stakeholders because it left creditors exposed, highlighted governance and creditor‑control issues, and showed how settlements can be disrupted even late in the process.
The article reports that liquidators PPB and associated law firms had racked up eye‑watering fees — about $62 million by August (with $28 million to law firms) plus another $20 million as the scheme was prepared — and even mentions $80 million in fees that ultimately bought nothing when a deal collapsed. For investors and creditors this underscores the cost of complex insolvencies and the risk that recovery can be eaten by professional fees.
The piece contrasts how big banks (ANZ, CBA, NAB and Westpac) benefit from a large Reserve Bank bailout facility (cited as $380 billion) while corporations like Google Australia are criticized for minimal tax contributions even as they build big infrastructure. For everyday investors this is editorial context about systemic advantages and regulatory/tax debates that can influence sector returns, public sentiment and policy risk around major companies.
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