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Last Updated: Wednesday, 10 November, 2004, 00:01 GMT
News Corp finds pill hard to swallow
Stephen Evans
By Stephen Evans
BBC North America business correspondent

Rupert Murdoch
Rupert Murdoch is paving the way for one of his sons to take over

The enlightened view is that poison pills are not the most glorious aspect of capitalism.

Proponents of free or freeish markets reason that unless companies can be taken over with some ease, inefficient and undesirable practices will flourish.

The argument is that companies that are open for take-over have to keep on their toes for fear of predators.

So why has that arch defender of free markets, Rupert Murdoch, designed a poison pill to protect his own company, News Corporation?

Succession issue

The simple answer is: to keep control.

He has two sons poised to take over and he was not about to leave open the slightest chink through which outsiders might enter and usurp the heirs apparent (or the heir apparent, depending on whether it turns out to be Lachlan or James who finally gets the crown).

So News Corporation (a controlling 30% of which is owned by the Murdoch family) came up with a clever poison pill: if anybody acquires 15% or more of the company, all the other shareholders would be able to buy more stock at half price, so diluting the value of any shares the predator bought.

Mr Murdoch's defence of the company he has built up over fifty years and which he presumably wants to hand on to his off-spring was prompted by the activities of his rival and, by some accounts, friend, John Malone, the chairman of Liberty Media.

Liberty had moved towards buying 8% of News Corp's voting shares to add to the 9% it already owns.

Liberty saw assets it could buy cheap and sell expensive and so did the obvious

It now denies any hostile intentions.

Its chief executive, Robert Bennett, said that it wasn't trying to get control of News Corp. Liberty is a "large, happy, friendly shareholder'' in News Corp, Mr. Bennett said.

According to Liberty, the deal was simply about taking advantage of under-priced shares in News Corp which is currently moving its registration from Australia to Delaware.

Future design?

There may be some truth in that - Liberty saw assets it could buy cheap and sell expensive and so did the obvious.

But there must be more to it than that.

The big question is whether Liberty has a long-term design on News Corp or whether it was just trying to increase its leverage, perhaps to sell some of its own assets to Mr Murdoch.

A bigger stake in Mr Murdoch's company gives Mr Malone more sway in its affairs.

Apparently, Mr Malone and Mr Murdoch remain on friendly terms, talking to each other on the phone.

But one suspects that there is some mistrust now in the relationship.

Mr Malone has bitten Mr Murdoch once without warning.

In this world, one bite leads to another, poison pill or not.

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