In the wake of the world's biggest-ever merger, between America Online and Time Warner Inc, media share prices soared on the Asia markets yesterday, with the rise followed through later in Europe and the US. AOL shares, however, did lose ground on fears about the impact on earnings of the merger.
There was frantic buying in Australia of shares in Rupert Murdoch's News Corp, which rocketed by 28 per cent, adding 16 billion Australian dollars ($10.49 billion) to the company's value. The buying spree arose from expectations that the multi-billion-dollar deal would set off a round of mergers and partnerships between media giants, which need "content", and big film, television, music library and Internet companies. This would benefit a company like the Australia-based News Corp. Along with Time Warner, Viacom and Walt Disney, Rupert Murdoch's News Corp is one of the biggest. However, analysts in Australia warned of obstacles to a media union between News Corp and Microsoft, for example, despite the immense pressure for new mergers following the AOL/Time Warner deal.
Microsoft said yesterday that it was taking a different path to AOL, focusing on software and service development while getting Internet content elsewhere. Also, Mr Murdoch would probably be unlikely to accept any merger which diluted his family's 35 per cent control of News Corp, held by the family company Cruden Investments. Uniting with a large corporation could bring the family share down to below 20 per cent. Mr Murdoch has had acrimonious public exchanges with Microsoft chief Bill Gates, whom he alleged last year was "trying to take over the world".
The Microsoft owner also has business links with Mr Kerry Packer, Mr Murdoch's biggest media competitor in Australia.
The News Corp empire employs 50,000 people and publishes scores of newspapers and magazines, including the Times of London, and it owns the big HarperCollins book-publishing house. It controls 82 per cent of the Fox Entertainment Group, which has significant television and entertainment holdings, including Fox Broadcasting in the US, Asian satellite TV network STAR TV, Twentieth-Century Fox and the Los Angeles Dodgers.
It also owns 22 US television stations and dozens of cable and satellite stations in Australia, Europe and Latin America. News Corp belatedly embraced the Internet in the past year, with a $1 billion programming and marketing partnership with Healtheon/Web MD Corp. Analysts said that Mr Murdoch was likely to follow his strategy of making more subsidiary deals to maximise the value of News Corp's content.
This would involve buying into distribution outlets and establishing global partnerships which would not affect Murdoch family control of the organisation. News Corp shares soared almost 28 per cent in hectic trading yesterday to a record closing high of A$18.60 ($12.09), rescuing it from a slump which saw shares fall to A$10.35 a few months ago. The stock gained almost A$16 billion, with News Corp's ordinary and non-voting shares accounting for nearly one-third of total trade by value on the Australian Stock Exchange.
"The market over the last 24 hours has seriously re-evaluated [News Corp] and re-rated it in a quite different way," said Mr David Rees, head of research at the Commonwealth Bank in Australia.
"What he's offering to people is very good content, a whole stack of DPs (non-voting shares) and maybe some cash, and I don't think that will be particularly attractive to Internet companies at this stage of their development," another analyst was quoted as saying. "What you will see for News Corp is a number of deals of the same magnitude as the Healtheon deal, probably in a hurry."
Other Australian media stocks shot up yesterday at the prospect of more mergers. Kerry Packer's Publishing and Broadcasting Ltd rose almost 10 per cent, while publisher John Fairfax Holdings Ltd and television station Seven Network Ltd were both up about 5 per cent.
The buying sent the Australian share market to its own all-time closing high, with the benchmark "all ordinaries" ending 61.5 points higher at 3,164.6. By the close of trade today, News Corp was worth around A$72.62 billion, up A$15.96 billion on yesterday's A$56.66 billion. Merger-induced buying pushed Japanese shares up over 3 per cent yesterday. Tokyo's benchmark Nikkei average closed up 657.51 points, or 3.61 per cent, at 18,850.92. Gains were led by high-tech stocks.
"The opinion both in New York and Tokyo is that high-tech shares have seen enough correction and are ready to head higher," said Mr Hirokuni Matsumoto, a trader at Yamatane Securities. Malaysian shares surged 3.8 per cent with the focus on technology stocks, banking stocks and blue chips.
