FEG Shareholders Likely to Take Offer

Jan 16, 2005  •  Post A Comment

Despite receiving static from some Fox Entertainment Group shareholders unhappy with the offer made by Rupert Murdoch’s News Corp. to purchase outstanding Fox shares, Wall Street analysts are betting the deal will be completed-and that the media giant won’t have to sweeten its bid to get it done.

Some investors have balked at News Corp.’s exchange offer, which amounts to $33.54 a share, or a 7 percent premium over the Jan. 7 close price, calling it inadequate. One group of shareholders filed a class-action lawsuit immediately following the Jan. 10 announcement by News Corp. that it was going to buy the nearly 18 percent stake in Fox that it didn’t already own.

For about a day, those restive investors had the market on their side: Shares in Fox surged to $34.60 on word of the News Corp. offer, after spending the past two months hovering at around $30 a share. For the rest of last week, however, Fox shares generally traded below News Corp.’s offer price.

Credit Suisse First Boston analyst William Drewry said he expects FEG shareholders to accept News Corp.’s offer because the downside is greater if they don’t.

That’s because the indications are that News Corp. has no plan to increase the price of its bid. Indeed, News Corp. Chief Financial Officer David DeVoe said the bid on the table is “a full and fair offer” and that “the offer stands as is.”

Tax-Free Transaction

But perhaps the bigger risk comes if the balking leads News Corp. to rescind its offer, which is valid until Feb. 7. Should News Corp. withdraw its bid, Mr. Drewry estimated Fox shares could tumble by as much as 15 percent, leaving Fox shareholders worse off than before the offer.

The transaction, which was widely expected following News Corp.’s reincorporation late last year in the United States, has a value of $5 billion to $6 billion. News Corp. owns 82.1 percent of Fox’s equity, but controls 97 percent of the voting power through its ownership of around 59 percent of the outstanding class A FEG shares and 100 percent of the outstanding class B shares.

News Corp. is offering Fox class A shareholders 1.90 shares of News Corp. stock in exchange for each Fox share. Once the transaction is completed, News Corp. will launch the merger of Fox and expects the entire transaction to be tax-free for Fox shareholders.

Fox’s move back into the News Corp. fold comes six years after Fox’s initial public offering. At the time, the company said it was issuing shares in Fox-which includes the Fox broadcast network, 20th Century Fox studios and the various Fox cable channels-to enhance the value of News Corp.’s U.S. media assets and to provide the then-Australian-based News Corp. easier access to the U.S. capital markets. But most analysts expected Fox to be brought back into News Corp. once the News Corp. headquarters moved to the United States last fall.