Rupert Murdoch should give up control of News Corp.
The announcement of an increased share buyback at News Corporation is clearly meant as a sop to shareholders who might justifiably be querying whether Murdoch family control is really in their best interests.
The main criteria which determine whether a share buyback creates value for remaining shareholders is that a) the shares should be trading below intrinsic value; and b) there should be no better alternative use for the cash that would deliver better returns than the buyback.
Given the outcome of News Corp's acquisitive activity in recent years, there seems little doubt that a buyback would deliver better value than, for example, the acquisition of MySpace, for which News Corp paid $580m and then sold it for $35m; or the acquisition of Dow Jones for $5.7bn which has so far produced a $2.8bn write down, let alone the
'rampant nepotism' Murdoch displayed in News Corp's $615m acquisition of his daughter's production company Shine.
Whether or not News Corp's shares are cheap is more difficult to determine. They are certainly lowly-rated relative to peers such as Disney, Time Warner or Viacom, but the fundamental prospects must be more than usually difficult to determine in the light of the phone hacking scandal and the uncertainty this has caused over the future of Sky.
More generally, looking at the performance of News Corp an investor should surely query why Rupert Murdoch believes that the best person to control News Corp must be someone named Murdoch. So far his clans' control has produced a mediocre 10% Return on Capital Employed over the past five years and a share price which has underperformed the S&P 500 index for the past 15 years.
It is almost certain that what would create far more value than a buyback would be for News Corp to change its constitution to give shareholders of its class A non-voting shares a vote. In other words, hand over power to the people who actually own your company, Mr Murdoch.
Their time has come.
