Neil Chenoweth is one of the better Murdoch biographers out there. In part, that’s because he’s an excellent business journalist. Rather than trying to create a picture of a character, he hones in on the deals that have made Murdoch: mergers, acquisitions, and the like.
His book on a particular News Corp subsidiary, Murdoch’s Pirates, was at times overly complex and slightly baffling (to be fair, it’s a difficult topic). Virtual Murdoch is a similarly complex piece, in that it tracks Murdoch’s career from its very start until publication at the turn of the millennium. Perhaps because Murdoch as central character gives it something to hang from, the book feels a little more tightly knitted than Murdoch’s Pirates; it follows each stage of the deals and gambles (and Chenoweth very much presents them as gambles) that Murdoch has undertaken throughout his career.
In on instance, he outlines the leveraging the Murdoch was able to use to acquire an asset without losing equity control:
In 1985, under the US accounting standards News Corp had net assets of $166 million, which suggested Murdoch could only borrow about $175 million. He was raising new debt of $2.7 billion, fifteen times more than the banks’ lending limit allowed him. It was enough to induce cardiac failure in even his most hardened bankers. The only way that Murdoch could borrow more money was to increase his net assets, or shareholders’ equity. The easiest way to do this was to raise capital by issuing stock, as Turner eventually did with the cable companies. But it cost Turner control of his company. Murdoch was never going to allow that to happen.
Murdoch had two ways of getting around this bothersome lending restriction. First, his finance director Richard Sarazen argued that News Corps’ newspapers were worth far more than the modest values assigned to them in the group’s balance sheet. And to prove this point, he kept revaluing them … Between 1984 and 1987, Sarazen wrote up the mastheads of the group’s newspapers by $1.5 billion …
The revaluations solved half the debt-raising problem. Arthur Siskind and the legal team at Squadron Ellenoff solved the other half of the problem. Murdoch needed to raise $1.15 billion in junk money from Michael Milken to buy Metromedia. It was, as Siskind later told American Lawyer, ‘an extraordinarily complicated and very unusual financing’. Siskind’s twist was that instead of treating the loans as junk bonds, News would call it preferred stock. While in essence this would be a $1.15 billion loan, it would appear on the News Corp balance sheet as a stock issue. Because it was called a stock issue, it would be treated like an asset.
Later, Chenoweth summarises quite neatly a set of causally linked crises that he’s described:
Murdoch had never been able to afford his great move in 1985-86 to buy Twentieth Century Fox, the Metromedia television stations and to launch the Fox network. To pay for it, he moved his British newspapers to Wapping and triggered a year of violent industrial confrontation. The Wapping success produced a new debt problem that he tried to solve by taking over the Australian newspaper industry. When that plan went wrong he had been forced into a deal that left a crippling debt in a family company. Then, in the deals after Black Monday 1987, Murdoch flipped the problem back to News Corp. Cruden’s loan problem was now once again News Corporation’s lurking debt crisis.
Then documents some fascinating patterns in corporate accounts:
David DeVoe celebrated News Corp’s escape from the debt crisis with the accounting equivalent of a barrel roll. Sarazen had produced his party trick once in the News Corp accounts each year. DeVoe did it three times in the same set of accounts. Profit before abnormal items came in at $A391.391 million. Minority interests of $A70.070 million were subtracted to give a profit of $A321.321. The odds against three numbers repeating themselves like this were more than 100 million to one.
There’s a lot more in the book that’s worth reading, if you’re interested in media economics and finance. It is of course hard to know how seriously to take Chenoweth’s Kremlinology, given that he relies very much on secondary sources; but it’s an interesting read, and has experience at the AFR that gives him some credibility.
Oh, and if you’re interested in reading about the infamous ‘poison pill’, this is one of the better explainers I’ve found.