What's Rupert's game?
Recommendation
Just the size of the thing alone would guarantee the float a huge premium – in September Murdoch said it was worth something like US$40bn. Only trouble is, these are bad times for any kind of telecommunications stock (even this media-focused one). So the float is off until perhaps the first three months of 2001 and before then Rupert must do some fancy footwork to make it look more interesting.
Deal struck
His first manoeuvre has been to get a fellow American billionaire into the action. News struck a deal to acquire a 21% stake in Gemstar-TV Guide, a satellite company that provides TV program guides online, from pay-TV operator Liberty Media. News paid 80% of the consideration in preferred limited voting ordinary shares and is settling the rest with Class A shares, giving Liberty about 18% of News.
Liberty will exchange its interests in Sky satellite in Latin America for 4.8% of Sky Global Networks, and will take up US$500m in the Sky float.
'So what?' we hear you ask. Well, it all has to do with Liberty Media's boss, John Malone, the above mentioned billionaire - not only a pioneer of the industry, but a renowned deal maker, his biggest one being the sale of his cable television business to AT&T in 1998 for US$54bn. Having John Malone on board gives the float some extra credibility, although rumour has it that more is being sought, with Microsoft supposedly being tapped on the shoulder to invest as well.
The trouble with News Corp is that, because it is 'deal driven', the quarterly results sometimes disappoint. There's never such a thing as a quiet life with Rupert Murdoch in charge. In the September 2000 quarter revenue grew 15.88% to $5.62bn (Aussie dollars) but net profit after tax before abnormals of $300m was virtually unchanged, with a poor showing by the television business because it didn't carry the Olympics.
That's why it's imperative for Rupert to pull off the Sky deal - without the thrills of 'bet the company' plays, the business looks fairly ordinary. With the stock continuing to slide – down 15.2% since issue 63 (Hold - $21.65) we maintain our cautious HOLD stance.