Fox Rocks on Murdoch Move

An initial public offering didn't end up unlocking the value of Fox Entertainment Group (FOX Quote), so now Rupert Murdoch's locking the entertainment outfit back up again.

News Corp. (NWSA Quote) on Monday set a tender offer for the 18% of Fox it doesn't own. The decision serves as another sobering reminder of how fallible companies can be when they start fiddling with their capital structure in a bid to increase their attractiveness to the market.

Sometimes the strategy just doesn't work -- at least for shareholders.

Yes, Fox's stock is trading higher than it was back in November 1998, when News Corp. made an initial public offering in the stock of its U.S. entertainment subsidiary. But Fox's stock hasn't done quite as well as parent News Corp.'s, or as well as shareholders expected in the optimistic times leading up to the offering.

It turns out that though investors value the clarity achieved by deals like the Fox IPO, other factors often intervene. In the case of Fox, the problem could very well have been the suspicion -- justified or not -- that in any transaction between Fox and News Corp., the Rupert Murdoch mother ship would come out ahead on the deal.

Maybe it had something to do with News Corp.'s 97% voting power in Fox, or in News Corp.'s overwhelming domination of the Fox board, or News Corp.'s marionette-puppet control of the deal in which Fox acquired a major stake in DirecTV (DTV Quote). Maybe Wall Streeters are just unnaturally cynical.

On Monday, News Corp.'s Class A nonvoting shares fell 58 cents to $17.07, while the NWS voting shares fell 39 cents to $17.84. Fox's stock rose $2.77 to $33.99.

High Hopes

Leading up to the IPO, confidence was high in some parts that an offering of the Fox assets -- placing them on their own pedestal and boosting their visibility -- would result in higher-valued pure-plays and in turn boost valuations of the parent company.