Thursday, May 03, 2007

Artificial sweetener

With Rupert Murdoch apparently just a couple percentage points shy of inking the deal for Dow Jones, he might consider wafting a little extra cash under the noses of the Bancroft family to get it done.

Hard as it may be to believe, it’s considered perfectly kosher in Delaware, the Promised Land for corporations, for an acquirer to pay a premium price to acquire the type of supervoting shares that stand between Murdoch and the $5.5 billion object of his desire.

Murdoch appears to be thisclose, as they say on his Page Six, to snaring a deal to buy DJ. Although roughly 80% of the family’s votes reportedly remain opposed to Murdoch’s offer, he would have 48% of the votes of the entire company if all the common shareholders favored a sale. In that event, Murdoch would need to recruit less than 5% more of the family’s shares to put this one to bed.

And that’s why he might consider offering extra cash to just the family shareholders, an incentive that is neither novel nor unprecedented in the annals of big-league deal making.

John Malone and his inner circle got an extra 10% for their vote-rich shares of Tele-Communications Inc. when AT&T bought his company for $59.9 billion in 1999. Although the ordinary stockholders filed suit over the $376 million premium shared by the cable baron and his fellow supervoters, the $52 million settlement eventually shelled out by the uber-investors was little more than a nuisance fee to a guy who single-handedly grossed more than $2 billion as his share of transaction.

Notwithstanding the TCI case (which was complicated by a few ancillary matters), the Delaware courts subsequently have ruled that there’s nothing wrong with slipping a few extra shekels to the controlling stockholders. “Put simply, pure ‘control premium-envy’ is not a cognizable claim for a minority stockholder,” the Delaware Chancery Court ruled last year.

It’s only fair, the court stated, that “controlling stockholders, who are subject to the risks associated with holding a concentrated position, may receive a premium for their stock over that paid for any other stockholders’ shares,” according to a summary of the case by O’Melveny & Myers, a New York law firm.

There’s no way to know if the supervoters are in line for a bonus at Dow Jones – or whether this tactic some day could figure in the fates of such similarly structured companies as the New York Times and Washington Post.

But it’s always amusing to contemplate the many ways the rich can get richer.


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