View from City Road: Murdoch gives cause for concern

Rupert Murdoch never gives up. It is one of his strengths as a businessman. It is also a quality which keeps investors in News Corporation on their toes.

Mr Murdoch has a problem - how to finance expansion without further diluting his family's 32.3 per cent stake in the company. Last year he came up with a solution, a new class of 'super share' with extra voting rights for existing shareholders which would have enabled Mr Murdoch to raise new funds without losing control.

That idea received a very dusty reception from both the Australian Stock Exchange and News Corporation's shareholders and was eventually withdrawn. Anyone who thought that was an end to the matter, however, would have been very mistaken.

News Corporation has now quietly announced a one-for-two bonus issue of limited voting preference shares. And this time there was no need to ask anyone's permission.

While the super shares scheme would have been a swifter and surer way for Mr Murdoch to secure dynastic control, the preference shares are - from Mr Murdoch's point of view - a respectable alternative.

Yet the real reason the Australian Stock Exchange took such a dim view of the news, marking the company's shares down more than A40c yesterday, was because its real fear is that history is about to repeat itself.

News Corporation says it has no present intention of using the shares to raise funds. But it is presumably testing the water to see how they will be valued by the market. Otherwise, why issue them?

With a dividend twice that of the ordinary shares, they could trade at anything between their value as a fixed interest investment of about A70c a share and News's ordinary share price, estimated to be dollars 5.70 to dollars 8 after the issue.

News Corporation is also pushing for the flotation of BSkyB, a move which could easily raise it pounds 1bn in cash even if BSkyB fails to achieve the ambitious sounding pounds 4bn- pounds 5bn valuation some of its shareholders, more in hope than than expectation, believe it is worth.

Put that together with a preference share issue and Mr Murdoch could be headed for another gigantic spending spree which may leave News in the same perilous state as it found itself in last time around. Old dogs do not learn new tricks.