THE DISTILLERY: News reviewed

Scribes assess the market's initial reaction to a demerged News Corp, with one noting the combined value of the two has proved more lucrative than one.

Trading in the New News Corp quietly began the world over in the last 24 hours. The outlook for the print publishing arm remains unclear given the problems with traditional media that we’re all aware of, but the split can really be marked as a positive outcome for billionaire chairman Rupert Murdoch, according to business scribes.

Also in this morning’s edition of The Distillery, the long-awaited call on Nathan Tinkler’s Whitehaven Coal stake has finally come and three commentators given their take on the controversial former billionaire’s rise and fall.

But first, Fairfax’s Malcolm Maiden poses the question of whether New News Corp is a way for Murdoch to put some distance between the “atrophying” print assets that have been hampered by the phone hacking scandal, or to give the newspapers the best possible chance of survival.

“It's a bit of both. The spinout faces structural headwinds, just as Fairfax Media and every other group that owns traditional print media assets does, and the man who will run it, Robert Thomson, says cost cuts are required. Its print media mix is sweetened by other assets including pay TV in Australia, however, and it enters the world debt-free, and with net cash resources of about $2.6 billion. The part of the old News Corp that is left after the spinout is meanwhile being renamed 21st Century Fox, and goes forward with a cleaner growth profile.”

The Herald Sun’s Terry McCrann notes that the first day of trading resulted in the combined companies being worth $3 billion more than the day before.

“That was a not-to-be-sneezed-at 3.8 per cent increase in value for shareholders on a day the overall market added 1 per cent. However, a little less than half of that increase arguably came from the fall in the Aussie dollar, as News Corp is priced essentially as a US company. So perhaps there was $1.5-$2 billion of first-day value creation that could be clearly attributed to the demerger.”

Business Spectator’s Stephen Bartholomeusz looks at the trading in the lead up to this event and notes the overall value of News Corp has gone up significantly.

“If the combined value of the new arms of the old News Corp could hold up, Murdoch would be well pleased because the big bump in value as a result of the demerger – and it was a massive 65 per cent bump – has already occurred. Before Murdoch announced the split, News Corp shares – depressed by the UK hacking scandal as well as the general question mark over the future of newspapers – were trading at or below $US20. Since that announcement last June they have traded as high as $US34. With hindsight, until the demerger decision was made, the market was attributing minimal value, and perhaps even negative value, to the assets now held within New News Corp. The decision, by an initially reluctant Murdoch, unlocked enormous shareholder value. The demerger has been a success well before it has actually occurred.”

Meanwhile, Tinkler’s lenders finally pulled the trigger on a call against his stake in Whitehaven, bringing speculation that’s lasted over a year to a conclusion. On stories like this, where an event is seen coming a mile down the road, commentators have the time to really prepare their take.

The Australian Financial Review’s Matthew Stevens makes a very shrewd observation about the legal battle between Tinkler and Blackwood Corporation via his private company Mulsanne Resources and how that fits into yesterday’s announcement.

“In May, Blackwood returned to the Supreme Court looking for a freeze on Tinkler’s assets until the conclusion of the liquidator’s pursuit of breach of duties and insolvent trading allegations against the directors of Mulsanne directors (of which Tinkler is one). Tinkler challenged this application on the basis it prevented him selling assets to meet his rolling financial settlements. Ahead of any decision, he negotiated temporary pause of Blackwood’s legal pursuit. The terms of that deal required Tinkler to surrender any claim of 30 per cent of Blackwood and to stump up with $12 million by the end of June. It is hard to believe that this temporary cessation of hostilities did not play a role in Tuesday’s ‘sale’ process, because by putting a time lock on the Tinkler freeze, Blackwood opened – potentially very briefly – a window for the big fella’s bigger creditors to defend their own interests. It will be interesting to watch how Blackwood is rewarded for its generosity.”

The Australian Financial Review’s Chanticleer columnist Tony Boyd argues that it would be wrong to think of Tinkler as just a tearaway that briefly captured the attention of corporate Australia but leaves behind no lessons of substance for us.

“He was a master, not only at spotting unloved or unwanted assets, but also at convincing financiers to back his ambitious development proposals. You don’t get a spot on the BRW Rich List with wealth of $1.13 billion without showing a talent for deal-making. But Tinkler was never able to restrain that deal-making enthusiasm long enough to consolidate his wealth. Boundless optimism is fine when commodity markets are moving in your favour but the sudden downturn in the coal market did not dim his ambitions. That proved to be his downfall.”

But The Herald Sun’s veteran business scribe Terry McCrann can’t help but point out that Tinkler’s story of relying on inflated asset valuations and debt in a bull market, only to be brought undone by a turn of the bears, is not a new one.

“In the 1980s the high flyers were brought down in two staggered stages on the basis of too much debt. That was the time when the ANZ Bank would lend a 26-year-old neophyte wannabe in young Warwick Fairfax $2 billion to buy the family company, essentially on the basis of a phone call. The first shock was the 1987 stock market crash, which wiped out 25 per cent of the stock market's value in a single day. And much bigger percentages for the ‘entrepreneurial’ stocks. It's been ever thus. Your debts are higher than your assets, you are in trouble with a capital T.”

How much trouble with a capital T? That’s the question addressed this morning by Fairfax’s Elizabeth Knight.

“The big question is whether this deal will be enough to allow Tinkler to fight another day. Sources close to the coal mining entrepreneur say he walked away ahead of the Whitehaven share sale but that he still owed money to those that helped him finance the Whitehaven deal, including Farallon and Noonday Asset Management. How such a strange deal between borrower and lender could have been structured this way is an imponderable.”

In other company news, Fairfax’s Michael West runs through some questions he’s put to the Australian Securities & Investments Commission and Kagara, a company once worth $1 billion that’s now controlled “by no less than four administrators from FTI Consulting”.

The Australian’s John Durie reports that Virgin Australia’s deal with Brisbane Airport to help support a second runway, a move that is all about capex savings for the low-cost airline, has “left dark mutterings at Qantas about setting new precedents”.

Meanwhile, The Australian’s economics editor David Uren examines the position of Treasury secretary Martin Ferguson in the event of a Coalition government, given that Tony Abbott has promised there will be no Night of the Long Knives as was the case under his mentor John Howard.

The fact is the Coalition remains suspicious of Treasury following the leaking of Opposition budget information in the lead up to the last election.

The Australian’s Asia-Pacific editor Rowan Callick reports that Australian businesses are struggling amid China’s economic restructure.

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