De-dualling

News Corp: Change is needed at the scandal-ridden $41-billion News Corp. Scrapping the dual-share structure would signal a fresh start and could create a big slug of value. A Reuters Breakingviews calculator shows how the Murdochs could benefit handsomely — and non-voting shareholders, even if diluted, might also end up ahead.

News Corp boss Rupert Murdoch and his family own about 40 per cent of the company's voting B shares. Their overall economic interest is only some 12 per cent because non-voting A shares, owned by most regular investors, account for 70 per cent of News Corp's equity.

Currently, voting shares trade at a very slim premium to non-voting shares, perhaps a reflection of the improbability of Murdoch giving up the whip hand. The biggest gap since News Corp listed in the United States has been just shy of 20 per cent, or a bit more than $2.50 a share at the time. But what if B shareholders were offered new stock worth a 30 percent premium to A shares, currently equivalent to almost $5 a share, in return for giving today's non-voters equal voting rights? The Murdochs' economic stake in News Corp would rise by a third to 16 per cent, though their voting power would fall by more than half to equal their economic interest. The family's extra shares would be worth $1.3 billion if the overall value of the company stayed the same. If News Corp's market value gained 30 per cent as the existing "Murdoch discount" shrank, the value of the family stake would rocket by $3.2 billion, or more than 60 per cent. The current crop of voteless A shareholders, however, would be substantially diluted. Without any uplift in News Corp's overall worth, their investments would fall in value by 11 percent. But assuming the same narrowing of the “Murdoch discount”, they would end up 15 per cent better off than before.

They would have to be convinced that enfranchising themselves would create value on this fairly grand scale. But Breakingviews estimates that News Corp currently trades at only about 70 per cent of the value of its parts benchmarked against peers. Loosening Murdoch's grip would reduce the likelihood of value-destroying purchases like those of MySpace and Dow Jones, while also modernising the company's governance. The idea that such a change could in time bring the 30 per cent value uplift assumed here - closing two-thirds of current gap with peers - doesn't seem too much of a stretch. The Murdochs might have non-financial reasons to resist. But if the will existed, the numbers may not be so hard to sort out.