George Mannes

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News Corp. Sheds Aussie Garb

George Mannes

After the U.S. markets closed Monday, more than 90% of the holders of both classes of News Corp. stock voted in favor of reincorporating the Australia-based company in the U.S.

The vote clears the way for the media conglomerate to have its common stock (NWS) and its preferred stock (NWSA) start trading on the New York Stock Exchange next month, in place of the American depositary shares that currently trade on the Big Board.

The move also fuels continuing speculation about the effect of the move on News Corp.'s stock, as well as other deals that News Corp. might have in store.

Shares in News Corp., which rose 3% Monday in advance of the shareholder vote, rose further Tuesday, with the common stock up 14 cents to $32.19 and the preferred up 24 cents to $31.49.

Though News Corp. had always expressed confidence that it would receive the necessary shareholder approvals, some uncertainty had remained. Earlier this month, News Corp. announced it was instituting several shareholder rights measures "to allay concerns expressed by certain shareholders that existing rights might be diminished" in the reincorporation.

As a result of the move, it's expected that many Australian shareholders will be selling shares in News Corp. to reflect its removal from local stock indices. Meanwhile, U.S. shareholders likely will be bulking up, partly because of the expectation that News Corp.'s NWSA preferred shares will be added to the S&P 500 next year.

However, the immediate effect of any new U.S. buying may not be huge. While NWSA shares might erase the prior week's decline, "We don't anticipate a sustained near-term rally," wrote CIBC World Markets analyst Michael Gallant Tuesday, "as the incremental buyer of NWSA shares will likely wait until inclusion in the S&P 500 draws nearer." Gallant, who has a sector outperformer rating on NWSA and a $40 price target, says the vote removes an overhang on the stock that arose June 22 when Standard & Poor's decided against including News Corp. in both U.S. and Australian stock indices.

News Corp. has previously said it expects the reincorporation would overcome many U.S. institutional investors' reluctance to hold foreign companies' stock and preferred stock. As part of the move, that preferred stock will be converted into nonvoting common stock.

News Corp. also has said it believes that the U.S. reincorporation will increase demand for its stock, thus narrowing the trading discount of the preferred shares to the voting common stock.

Merrill Lynch's Jessica Reif Cohen called the vote a buying opportunity for longer-term investors, "particularly in advance of demand from a likely S&P 500 listing." Though Cohen says it's difficult to quantify, she says she believes that incremental shareholder demand will supersede forced selling from overseas indices. Cohen has a buy rating on NWS with a $47 price target; her firm has done recent banking for the company.

"Investor attention will also now shift to a potential (and in our view likely) buyout," says Cohen of the 18% stake in the U.S. entertainment subsidiary Fox (FOX) that News Corp. doesn't already own. "However, this view is now widely disseminated," says Cohen, "and we believe, is largely in the stock."

Fox's shares fell 20 cents Tuesday to trade at $28.94.