THE DISTILLERY: Murdoch mayday

Well, in a case of 'who would have thought that': China saves global markets (again), with an assist early today from US Fed chairman Ben Bernanke; David Jones stuns with a big sales and profit downgrade last night and Rupert Murdoch retreats from BSkyB in the face of opposition from not only voters and readers, but the entire British parliament. All would have been thought a bit left of field or impossible just 24 hours ago, but all three were real, especially the Murdoch reversal.
 
Fairfax reported this morning: "An audacious plan to buy back News Corporation shares worth $4.7 billion has failed to stop investors fleeing Rupert Murdoch's scandal-ridden international media empire, with its shares falling for a third successive day. Last night Australian time, News Corp dropped its bid to gain full control of British Sky Broadcasting Group after politicians demanded the offer be scrapped because of the phone-hacking scandal swamping its British newspapers. The withdrawal of the £7.8 billion ($12.5 billion) takeover of the remaining 61 per cent of Britain's largest pay-TV broadcaster is a blow to News Corp's strategy to bolster digital operations and benefit from BSkyB's rising cash flow."

And the Financial Times reported in its Asian edition: "Rupert Murdoch has bowed to intense political pressure and withdrawn News Corp's planned £7.8 billion bid to take full control of British Sky Broadcasting, after the company admitted public condemnation of phone hacking at his UK newspapers made the climate "too difficult”. The decision to abandon the 13-month pursuit of the UK's most valuable commercial broadcaster means the phone-hacking scandal has forced Murdoch not only to close News of the World, but also to curtail his ambitions to consolidate his pay-television empire in Europe."
 
The Financial Review reported: "US lawmakers on Wednesday called for the Justice Department and Securities and Exchange Commission to investigate whether News Corp broke a US law banning payments to influence a foreign official." The paper also said: "The News Corporation's investors appear to be breathing a sigh of relief now that the media conglomerate has withdrawn its troubled $US12 billion bid for British Sky Broadcasting." The sale of the News International business in London has also been suggested.
 
Business Spectator's Stephen Bartholomeusz wrote: "It was obvious from the moment last week when the UK phone hacking scandal went nuclear that News Corp would struggle to contain the fallout. With the damaging allegations emerging literally on a daily basis, News is being forced into a series of desperate attempts to contain a crisis which threatens to destabilise it at the most senior levels. The closure of the News of the World was the biggest and most obvious sacrifice News has made, but that hasn't prevented the tide of revelations, allegations and opprobrium escalating. Nor did the profuse apology and condemnation of the News of the World's activities by James Murdoch do anything to mute the criticism. With the allegations of illegal behaviour spreading to other News titles in the UK, it would have been clear to the media giant that the prospects of obtaining UK government approval for its proposed bid for the 61 per cent of the big UK pay television service, BSkyB, that it doesn't own were, whatever the technicalities, non-existent."
 
And The Australian reported this morning: "Rupert Murdoch last night bowed to pressure from a united British political establishment and withdrew his cherished pound stg. 8 billion bid to buy the UK's top commercial broadcaster BSkyB. In one of his biggest political defeats, the Australian-born proprietor abandoned what would have been the biggest and most lucrative takeover of his 58-year media career. The decision came after all major UK political parties had agreed to a House of Commons motion urging Mr Murdoch's news Corporation to drop the bid following revelations of criminal behaviour at his New of the World newspaper and an alleged cover-up by his British executives."
 
Back home, and the Herald Sun reported: "The crisis gripping the nation's retailers took a turn for the worst last night when top-end department store chain David Jones unveiled a shock profit downgrade. The ritzy retailer blamed a "dramatic and rapid deterioration" in trading conditions for a 9-12 per cent fall in second half profit to $62 million-$64 million. And the retailer has also taken the axe to forecasts for the new financial year – only 14 days old – with CEO Paul Zahra forecasting first-half profits will fall up to 20 per cent compared with last year to $84.5 million-$90 million. 
 
Fairfax's Elizabeth Knight examined the shock downgrade from David Jones and what it means: "It was difficult to imagine that listed companies operating in the discretionary retail space would get away without a profit downgrade for the 2011 financial year. David Jones last night broke the downward revisions drought and confirmed the market's worst fears – the dire retail environment had played havoc with its profit. The revelation cements the worse fears for the retail industry and provides some quantification of the extent to which the sector is hurting. Every piece of information over the past month suggests that most retailers will be struggling to retain their margins in the face of heavy discounting and stagnant revenues."
 
And The Australian reported: "Australia's iconic department store chain David Jones has slashed profit forecasts after sales collapsed during the winter clearance period, with its chief executive Paul Zahra warning that the deterioration in trading conditions in the last two months had been unprecedented. The company has forecast a decline of up to 20 per cent in profit for the first half of the new financial year. The stark warning will be sure to pull the rug from under retailers' shares this morning, with other data yesterday indicating that consumers are pessimistic."
 
Elsewhere, the AFR reports that "ASIC has doubled its insider trading investigations this year as it targets investment bankers, lawyers and consultants who advise on confidential corporate deals". 
 
The Herald Sun also reported this morning: "The gap between the price of Foster's shares and the price offered by suitor SABMiller has narrowed as hopes for a higher bid fade. Foster's shares closed yesterday at $5.09 – up just 1 cent in a broadly positive market and down 12 cents from their peak last month after SAB Miller's informal $9.5 billion offer was unveiled. The Australian brewing group rejected the proposed cash offer of $4.90 a share last month, saying it undervalued the group."
 
The Australian's Bryan Frith looks at the end of a messy takeover play: "US real estate investment group EPN is poised to secure full ownership of EDT Retail Trust, but the manner of its victory leaves a bitter aftertaste. EDT was formerly the Macquarie-managed Macquarie DDT Trust, but EPN last year secured a 47.9 per cent holding by taking a 15 per cent placement and sub-underwriting an entitlement offering that was always going to fall substantially short. As part of the restructure, EPN also acquired Macquarie's 50 per cent interest in the trust's responsible entity."

The Australian's Tim Boreham wrote yesterday: "Nine days into the new financial year, the market's vague hopes of a new dawn are in tatters as Wall Street records its third consecutive heavy fall. So far in July, the Australian market (as measured by the All Ords) is down 0.3 per cent, having declined 2.7 per cent in June, 2.25 per cent in May and 0.6 per cent in April. The old chestnut about things recovering after tax-loss selling is out of the way has proved wanting, which makes sense given the global, rather than local, nature of the concerns (although the carbon tax hasn't helped)."
 
Fairfax's Ian Verrender writes: "That high-pitched squeal, accompanied by the alluring aroma of burnt rubber, down in Martin Place yesterday could well have been Glenn Stevens and his Reserve Bank team practising high speed U-turns. After the sudden note of caution that emerged during the monthly meeting a fortnight ago, Stevens and crew no doubt are on high alert about the possibility of an out-of-control Italy careering down the road and wiping out all in its path. It has become increasingly likely the Reserve Bank now is shifting its stance on the future of domestic interest rates."
 
And Fairfax's Malcolm Maiden wondered about a similar topic, with a bit of 'China growth saved' thrown in: "China demonstrated again yesterday how central it has become to the world's attempt to leave behind the global crisis of 2008-09. Markets here and overseas had headed south again as investors digested yet more bad news from Europe, where the credit rating agency Moody's moved Ireland's debt into the junk category, and attempts to find a way to re-rescue Greece and quarantine Italy and Spain from the sovereign debt crisis continued to struggle. Then China announced that its economy had grown by 9.5 per cent in the June quarter after expanding by 9.7 per cent in the March quarter. Shares rallied because the growth number boosted hopes that China could have its cake and eat it as it moved to suppress inflation. China's consumer price index hit a new year-on-year high of 6.4 per cent in June and food prices jumped 14.4 per cent."
 
Meanwhile, the Financial Review reported: 'The US Federal Reserve is ready to ease monetary policy further if the world's biggest economy weakens and inflation moves lower, chairman Ben Bernanke has told Congress." Those comments – and China's solid second quarter growth figures – sent global markets, especially commodities like gold, higher.
 
And Terry McCrann continues to be obsessed by the carbon tax in the Herald Sun: "The carbon (dioxide) tax is forever. And going higher and higher. But the supposedly compensating tax cuts will quickly evaporate thanks to good old bracket creep. Before you even get to 2020 your tax cuts will have all but disappeared in real terms. But the carbon (dioxide) tax will be plucking more and more dollars out of your wallet and purse. And it will be plucking the wallets and purses of people earning between $400 and $1500 a week most. In part, to send billions of dollars a year overseas to; at best, investment banking spivs and main-chancers that brought us the 2008 global financial meltdown; at worst, to outright Nigerian-scam style thieves. All just for the 'right' to keep using some of our coal-fired electricity."
 
And finally, The Australian's Michael Stuchbury wrote this morning: "Economists have defied Tony Abbott by strongly supporting Julia Gillard's carbon price and opposing his direct action plan. Fifty nine per cent of economists surveyed at this week's annual Australian Conference of Economists agreed or agreed strongly that Labor's carbon price package was "good" policy, more than twice the 27 per cent who disagreed. Only 11 per cent of the 145 economists who replied to the special survey said they agreed or strongly agreed with the Coalition's plan, which excludes a tax or price on carbon."