Murdoch plans 6 billion roll-up of Fox

Now that he's moved News Corporation to the United States, Rupert Murdoch is moving to roll the company's US subsidiary, Fox Entertainment, into the parent company. News Corp. announced an exchange offer to trade 1.9 shares of News Corp. Class A stock for each share of Fox stock. The stock swap values Fox shares at 33.54 each - - a premium of 7.4% over Friday's close.

In all, the transaction is valued at 5.86 billion. If it is approved by Fox's minority shareholders, they will wind up owning a bit more than 10% of News Corp. The parent company already owns 82% of Fox's Class A stock and all of its Class B shares.

In a conference call to discuss the offer, News Corp. CFO Dave DeVoe (who holds the same title at Fox) insisted that the swap will be good for Fox shareholders. But closing is no slam dunk. Speculators drove Fox shares above the offer price on Monday in apparent hope of seeing the price boosted. During the conference call, DeVoe fielded questions from several analysts and money managers who said the bid seemed "light." But DeVoe insisted that it was fair and also said that there is no necessity for News Corp. to roll up the US subsidiary, which owns, among other things, the Fox O&O TV stations, the Fox TV network, Fox News Channel, FX and Fox News Radio.

A committee made up of Fox's two independent directors will get a fairness opinion from an outside advisor and make a recommendation to shareholders whether to accept the offer. But even if they say no, DeVoe indicated that News Corp. could still close the rollup if a majority of Fox's public shareholders tender their shares by the February 7th deadline, which could be extended.

RBR observation:
Will investors force Rupert to sweeten the pot? Wall Street certainly thinks so. One of the money managers on yesterday's call claimed that Fox was really worth 41. Some questioned why the deal should be accretive to News Corp. at all - - which DeVoe acknowledges it is - - and suggested that Fox's public shareholders should receive the equivalent value of News Corp. shares. We don't look for that to happen, but we wouldn't be surprised to see a small boost in the offer to grease the skids.