Amid the Sheep, Citizen Murdoch : Media: News Corp.'s founder goes home to South Australia to calm things down. The debt-burdened company’s stock price has been plunging.


Rupert Murdoch goes home next week to Adelaide, the South Australian capital where he inherited control of two newspapers 38 years ago and began building one of the largest media empires in the world.

Murdoch is not returning for sentimental reasons--he has spent most of his adult life avoiding the sleepy port city of “sheep and churches.” But Adelaide is where News Corp. holds its annual shareholders meeting, and Murdoch is making a rare public appearance to calm fears that his company is in trouble.

Indeed, for a man who enjoys nothing more than a good scrap, Murdoch has lately taken it on the chin.


This month, News Corp.'s stock price has plunged 62% amid investor fears that the company may be facing a cash squeeze while its profit comes under pressure because of a worldwide downturn in advertising.

“The market in this environment doesn’t like highly (leveraged) companies,” said George Batsakis, a media analyst with J. B. Were & Son in Melbourne. “And News Corp. operates in economies where trade conditions look to be weak for at least another 12 months.”

News Corp., the global media conglomerate that includes the Twentieth-Century Fox film studio, TV Guide, brassy tabloids in London and 60% of newspaper circulation in Australia, has some notable problems. Foremost among them is a crushing debt left over from a decade of unbridled expansion.

Like many moguls in the 1980s, Murdoch built his company by borrowing. News Corp.'s total debt now reaches $8.7 billion (U.S.), larger than that of some Latin American countries. Interest payments alone cost $724.6 million for the fiscal year ended June 30.

What set off alarms among analysts, however, was a nearly sixfold increase in short-term debt--due within the next 12 months--which ballooned to $2.3 billion from $381.2 million last year. Those figures are released only once a year and came as a surprise to many News Corp. watchers.

The company, pressed for an explanation, said short-term debt rose because of the purchase and consolidation of several book publishing operations and a huge capital expenditure program for its British and Australian newspapers.

Investors also were not happy with the announcement that News Corp. wanted to issue two new classes of stock--one with limited voting rights and the other with no voting rights. Murdoch, who controls 43% of the voting shares and serves as chief executive, would therefore be able to raise additional capital without diluting his control.

But dual classes of stock--common among U.S. corporations, especially media companies--are not allowed under Australian rules. In typical like-it-or-lump-it fashion, Murdoch said he would remove his stock from the Australian Stock Exchange unless the rules were changed in his favor. His petition is being reviewed.

Murdoch’s most pressing concern right now, however, is pacifying the 120 banks around the world that have paid for his expansion plans. Murdoch has an almost mythical reputation among these bankers, and the company likes to promote what it describes as a “very strong relationship” with them.

Analysts hope that Murdoch will unveil at next week’s shareholders meeting specific plans on how he will reduce the company’s debt--such as selling assets or possibly taking on partners in certain businesses.

Stanley S. Shuman, a News Corp. director and partner in the New York investment banking firm of Allen & Co., says the company is working with its bankers to “recast” a portion of the short-term debt--all of which is due June 30, 1991--into long-term debt “that would permit reduction over time.”

In addition, Shuman points out, there may be “some sale of non-strategic assets in an orderly fashion,” which he declined to identify. Schuman did not rule out future acquisitions by News Corp. but noted that, as part of the refinancing, the company will be held to “only the most important strategic acquisitions in this period.”

Seven banks have loaned News Corp. a majority of its debt, according to a person familiar with the company’s finances. They are said to include Citibank, Security Pacific, Midland Bank in Britain, Deutsche Bank in Germany, National Australian Bank and Westpac of Australia, and Bank of Nova Scotia in Toronto.

Knowledgeable sources said the banks have loaned News Corp. several hundred million dollars apiece. Nearly all News Corp. debt, which is all bank loans except for some publicly traded bonds issued when the company bought the Fox TV stations in 1985, is unsecured.

Loan covenants, however, state that the company’s debt cannot exceed 110% of its assets. Recently, News Corp. revalued its assets upward by $2.46 billion--a practice allowed under Australian accounting rules--which placed its debt-to-equity ratio at 0.90 to 1.

Over the past several weeks, News Corp. executives have been meeting closely with the bankers to exchange projections on how the company’s various divisions will perform in the coming year. News Corp. traditionally stays in close communication with the bankers. Murdoch is said to personally and regularly brief Citicorp Chief Executive John Reed, for example.

Asked why his company’s stock price had dropped so far within a relatively short time, Murdoch told the Sunday Independent of London: “What’s happened to our share price? The history of the world over the last three months has happened to our share price.”

Murdoch, who routinely calls world leaders the way others dial casual friends, suddenly had some world-class problems. The Iraqi invasion of Kuwait shot up the price of oil, which is hastening a recession in Western economies and severely hitting the advertising-dependent businesses of News Corp.

Only a couple of weeks earlier, News Corp. had released its fiscal year-end financial results, which revealed that despite a 5.9% increase in revenue to $6.72 billion, income fell 46.3% to $216.4 million. The company said that if it were not for the start-up costs of Sky Television in Britain and a pilots dispute at an Australian airline in which News Corp. is a partner, earnings would have exceeded the $403 million recorded in the previous year.

Nobody but a handful of inside executives truly knows to what extent Murdoch may be in financial difficulty. Australia’s accounting rules do not require the kind of detailed disclosures ordered by the U.S. Securities and Exchange Commission, and News Corp.'s annual financial report is silent on even basic facts such as the maturity dates for its short- and long-term debt.

Analysts say that News Corp. can continue to pay its interest expenses from operating cash flow, although this coverage is shrinking as advertising has slipped at the British and Australian newspapers. But cash flow is not sufficient to pay for the company’s capital expenditure program, which cost $1.35 billion last fiscal year and will cost at least another $740 million this year.

Many analysts say the only way out for Murdoch is a “significant” asset sale. But the go-go market for media properties has ground to a halt over the past year, and it is difficult to imagine where Murdoch would find a buyer willing to match the price he paid for some of his assets, such as the $2.8 billion laid out for Triangle Publications, owner of TV Guide, two years ago.

Lachlan Drummond, an analyst with CS First Boston in Sydney, described asset sales as a “definite prospect” and believes that they will be in such non-core areas as commercial printing or paper manufacturing operations in Britain and Australia. But, Drummond says, “they are not worth a huge amount of money in dollar terms.”

Nobody right now is publicly predicting that Murdoch will realize the same fate as other leveraged speculators from the roaring ‘80s, such as Donald J. Trump, Robert Campeau and Alan Bond. For one thing, observers say, Murdoch is a hands-on operator who controls even the smallest parts of his business and will figure out how to keep his newspapers, magazines and TV stations running profitably in a soft economy.

But one thing is clear: Murdoch is not quite as free as before. The heady days of expansion are over--at least for the moment.


Thursday close: $8.63

Total debt (In billions of dollars) ’86: 2.92 ’87: 3.35 ’88: 4.48 ’89: 5.79 ’90: 8.2