News Corporation as One of the Top Five Hundred Global TNCs - Essay Example

News Corporation Near Collapse (1990) & Recovery May 2006 News Corporation Near Collapse (1990) & Recovery News Corporation isnow one of the biggest conglomerates in the world. The driving force behind the company and its CEO1 Rupert Murdoch is almost certainly the most influential and powerful media personalities of modern time, commanding a much higher profile than his contemporaries. Yet, had events around the 6 December 1990 turned out differently neither the corporation, nor Murdoch, would be in their current positions. Around that time News Corporation came to within hours of being forced into bankruptcy because his company could not repay a $2 billion loan. This may have been partly due to the fact that, at the time there was a sharp advertising recession, the worst in two decades (Roger Cohan 1990). The situation was that News Corporation was saddled with massive debts. Alex Burns (2002) reported that Murdoch's News Corp, which remains precariously afloat, had a colossal $11 billion in debt worldwide, nearly four times the annual turnover of the entire newspaper industry in Australia. In an effort to save the business a refinancing plan was put in place, but at the last minute, one small bank in Pittsburgh refused to go along with the scheme, demanding repayment of a $10 million loan. (Stephen Galloway and Paula Parisi, 2005) The task we have set ourselves within this document is to look at four key areas. Firstly to ascertain where the origins of responsibility for the crisis lay. Secondly to investigate how the crisis position was resolved without resorting to the irretrievable act of bankruptcy, and thirdly we will endeavour to examine how, when other notable media giants have failed, Murdoch was able to escape. Finally we shall discover how Murdoch has been able to revitalise the fortunes of News Corporation, successfully transforming itself into one of the top five hundred global TNC's2 1) Where did responsibility lie for the Company's near collapse Behind every corporate disaster, there is inevitably an attempt to apportion blame. With the News Corporation situation, the majority of financial media and other experts tended to place most of the blame at the feet of the management. But others were just as culpable. Management's role Rupert Murdoch is that inveterate breed, a corporate gambler. He thrives on risks and the bigger the stakes, the bigger the buzz and the bigger the payout. (Stuart Crainer.1999). In the 1980's he spent considerable amounts on acquisitions for his empire. Whilst the risks he took at that time are reaping benefit now, at the time they would, to any conservative financier, have seemed unacceptable. Perhaps a better example of how Murdoch chooses to live and do business comes in the events, which led up to the great credit crunch of 1990. These began in Murdoch's American acquisition spree of the middle 1980s. He bought the 20th Century Fox network in the US in 1985, the Metromedia chain of television stations the same year, and then in 1986 launched Fox, the first national TV network since 1959. He didn't have the money to pay for all of this, so he raised it by revaluing his company under Australian accounting3 rules, raising its worth from $166 million to $1.6 billion (Lanchester) The most costly corporate move Murdoch made in the late eighties was the investment in Sky. At that stage it was an enormous drain on the businesses cash resources. At the time the satellite subsidiary was posting substantial year on year losses. Despite Murdoch's somewhat dubious adeptness at moving funds around the various and numerous group subsidiaries to cover overextended cash flow positions, Sky had a cash thirst which could not be quenched without dramatically impacting on News Corporations liquidity, seriously reducing its ability to cover other commitments. Thus when the time came to repay $2 billion of bank debt, there were insufficient resources available to meet these contracted commitments. It is apparent from all the researches referring to his management style that Murdoch has always had an authoritarian approach to management. Thus, it is not surprising that his board of directors were not overly effective in their obligatory roles4. This lack of impact does not absolve them from their share of responsibility for the predicament that News Corporation found itself in at the end of 1990. In addition, he is just as dogmatic with those outside his employ and those to whom he owes, technically, a duty of care, namely shareholders and other stakeholders in the business. Rupert Murdoch, together with the total board of News Corporation, shares a major culpability5 for the events that transpired in December 1990. Financial institutions With committed borrowings to News Corporation in 1990, was a consortium of banks, in number around 145 in total. The evidence confirms, even before the crisis, that in totality, if not individually, these institutions were significantly overexposed. Considering the level of seniority and experience of personnel that would be required in negotiations with such a complex conglomerate as News International, it seems inconceivable that such professionals would not have been aware of the increasing risk factor to their funds at a much earlier date. In fact we would suggest that with any lesser scaled organisations most would have not entertained the level of lending levels against assets percentage that New Corporation were favoured with. It was of the smallest banks in the consortium, from Pittsburgh, which initially precipitated the financial crises by demanding that News Corporation honor their contractual agreement. They wanted more security. Rupert and Ann signed over a mortgage on their New York penthouse two days after the Crash. (Neil Chenoweth 2002). This still was not sufficient. When it was apparent that this would not be sufficient, the bank in question began the process of seeking redress through the courts. Apportionment of blame attaches itself to the consortium of banks insofar that they did not, in our opinion, undertake sufficient due diligence on a regular basis to ensure that the funds they invested were in safekeeping. Such professional would have had access to all current economic indicators and, additionally, the financial performance data from the Company itself. The situation, which arose here indicates that, for whatever motive, these organisations were not diligent enough. Financial Advisors All Publicly quoted corporations have to have their financial statements analysed and audited by a registered auditor. In fact, due to the size and complexity of such organisations, many will have more than one auditor. Auditors have a legal responsibility primarily to the shareholders of the business, in addition to their legal responsibility to the taxation and other associated governmental bodies. Part of that responsibility is to analyse critically the organizations debt and liquidity levels as well as cash flow capabilities at the date of the financial year end and, in addition to notify the impact that any post balance sheet event may have upon the business, especially if it is likely to be detrimental in nature. From the research carried out in the preparation of this report, it was evident that a number of financial commentators had some concerns as to the liquidity of the group. At the time of the crisis, the auditors were Andersens. In our opinion, they also share responsibility. It is interesting to note that some time later Andersens were replaced, ostensibly because of their involvement with the Enron case. Today's announcement came after corporate regulator the Australian Securities and Investment Commission (ASIC)6 yesterday granted News permission to replace Andersen, citing the "uncertain future of Andersen's international structure". (S. Simurda 1995) Indeed the task of the professional advisor is growing increasingly more difficult as corporate businesses become more diverse and take on a greater global structure. This tends to be caused by the fact that the professions still look to having specialists in particular fields, and this applies to countries and cultures, whereas the corporate person has a global rather than the more restrictive nationalized mentality. 2) How did the company avoid bankruptcy In reality, the corporation, apart from the offering of Rupert Murdoch's flat as additional security, took the only immediate action that was practical in view of the restrictive timescale, namely appealed to the financial institutions. Restructuring of debt The proposal was put to the banks that the debt be rolled over7. The reasoning behind this was that it would give News Corporation time to divest itself of a number of assets and trade it's way out of the problem. To succeed the proposal needed the agreement of all the participating banks. Initially, as indicated earlier in this report, such agreement proved to be difficult to achieve, particularly as the bank in Pittsburgh was reluctant to extend its exposure to the Corporation. In fact, this proved to be one of the rare occasions when Rupert Murdoch wasn't able to command the desired decision using his own influence. In the event, he was forced to engage the services of a senior executive of Citibank to almost force the deal through. One can only speculate on the possibility of undue pressure8 brought to bear on the smaller Pittsburgh bank, faced with the might of its bigger and more powerful industry brothers. Reorganisation of assets In the period post the crisis of 1990, News Corporation did sell off some of its operating assets, but they were not major sales. In this respect, Rupert Murdoch's shrewdness was exercised in such a way that these sales did not materially affect either his presence or influence in the media market. One action that did raise a few eyebrows, especially in terms of News Corporation shareholders was Queensland purchase of shares from Cruden9. 24 hours later in Australia, Queensland Press bought a parcel of News Corp. shares from Cruden at $16 when the share price was sliding to hit $8.50 the following Tuesday. Buying shares for almost twice the market price didn't hurt Cruden or the Murdochs, but it was a different story for News Corp. shareholders. News Corp. owned 44 per cent stake of Queensland Press as well. Doing the deal so far below market price arguably cost News Corp shareholders up to $100 million (Neil Chenoweth 2002) 3) Why did this company survive near bankruptcy when others haven't There have been many corporate failures during the 1980's and 1990's, several of them quite large. Therefore, it is necessary to pose the question, why was News Corporation spared from this fate. We conclude that there were a number of reasons. Some of these reasoning's are based in the corporate or business ethos, whilst others have a more emotive foundation. Comparison with other high profile failures Among the many notable corporate failures, the most comparable in the same industry would most certainly be the Maxwell organisation. In this case Maxwell's his activities in plundering the groups pension funds would have certainly seen him facing criminal charges had he not disappeared from his boat whilst at sea. Alan Bond's Bond Corporation, created in Australia, was also a spectacular failure at around the same time as Murdoch was experiencing difficulties. Again, in this case criminal acts by Bond himself seeing him sentenced and imprisoned. The scale of this failure shook the financial world by its sheer size. When Bond Corp first announced its loss of almost $1 billion in 1989 it shook most. (Clarke, Dean, Graeme & Oliver 2003). Other more recent spectacular corporate failure would include Exron and Worldcom. Like the other quoted here in these two cases there were substantial irregularities. According to close sources, Murdoch would not have followed the path taken by any of the others. "Rupert will never violate the law. He will not do anything unethical," said George Vradenburg, a former executive at Fox Inc. "But he will take advantage of all the rules allow Rupert is willing to take controversy." (Paul Fahi 1997) Emotive factors There were other less tangible factors taken into account as reasons for saving News Corporation and these were of a more emotive nature. Unlike the prime movers in the corporations mentioned in the previous paragraph, the financial institutions and the corporate markets as a whole trusted Rupert Murdoch. In the business world, that is a bankable commodity. Additionally the view taken in the corporate market was that Murdoch's corporation provided the perfect vehicle and indeed a reasonable element of the innovation, which in turn helped to further enhance and complement the competitive advances that were needed to further expand corporate globalization in the field of media and technological opportunities. 4) How did the company recover from the position As stated earlier there was a small degree of asset sales following the crisis, but in most other respects Murdoch took an unconventional approach in thrusting his corporation away from the crisis into financial growth and stability. No doubt, his theory was that he knew the business better than others. Thus, he redoubled his search for acquisitions. If anything his style and actions were more aggressive, post the crisis than they had been before. Murdoch made notable purchases, though now he was driving a much tougher purchasing price. To bear witness to that was the way that he almost forced the BskyB merger, hammering down the price to as near rock bottom as he could achieve. His eye for an expansion opportunity never diminished as he searched for businesses that would complement appetite of his growing organisation. Internal reorganisation The major area of internal reorganisation, which occurred as a direct result of the 1990 crisis, took effect, almost predictably, within Murdoch himself. Prior to 1990, Murdoch's main and possibly only focus was on the next deal, the next acquisition. This changed when he survived the bankruptcy scare. Murdoch has admitted that before he had not paid enough attention to the numerical side of the business. The improved and post 1990 Murdoch does. He now makes it and essential element of his role to keep a much closer eye on the financial performances of the multiple businesses under his control. Financial institutions There is still the same degree, if not more, of criticism levelled at Murdoch regarding his tough and sometimes aggressive and abrasive approach, and as always this is more pronounced with the media industry itself. On the other hand, financial institutions now rarely level any serious or damaging criticism at him in respect of the business activities. In general terms, they are as supportive of him now, if not more so, as they were in 1990. What's more important is that Murdoch has kept his word and achieved debt reduction Were this not the case the multiple business purchases could never have taken place. National and Global economy Murdoch's quest for acquisitions has not stopped at national or with familiar national boundaries either. Under his stewardship, News Corporation has not been afraid to cross borders, taking it into the emerging market of the Far East, including China. In embarking on a programme of such positive steps Murdoch has not only opened up the global market place for other corporations, he has pushed his business into a true transnational corporation in its own right, in tandem with other global corporations. . Conclusion Rupert Murdoch is not regarded by many as a popular man in every quarter. The suggestion is that other media organisations do not like him or his business because of his success in supplying the needs of the consumer. He is not even universally liked by celebrities, as Andrew Walker (2002) reported when commenting on an episode The South Bank Show. Potter, who was at the time terminally ill with cancer, yet had lost none of his waspish wit, mused on his life, his work...and his illness. "I call my cancer Rupert," he told Bragg. "Because that man Murdoch is the one who, if I had the time (I've got too much writing to do)... I would shoot the bugger if I could. Whatever ones personal or professional view of Rupert Murdoch, he deserves respect for the way in which he has learned from the mistakes. He has completely turned the business around, even if some of the methods employed are close to the edge of moral and ethical, if not legal, good practice. Few others could control such a complex and varied corporation focused in such a commanding manner. The financial results of Rupert Murdoch's efforts since 1990 speak for themselves. He has turned the business into a national and global. In a recent survey, News Corporation was rated at number 282 out of the 500 top corporations in the world and 86th in the top 500 US corporations (Fortune Global 500). In turn the financial results have followed. (see figure 1) Figure 1 Stock market facts speak for themselves. News Corporation (NYSE: NWS, NWS.A; ASX: NWS, NWSLV) had total assets as of December 31, 2005 of approximately US$55 billion and total annual revenues of approximately US$24 billion. News Corporation is a diversified international media and entertainment company with operations in eight industry segments: filmed entertainment; television; cable network programming; direct broadcast satellite television; magazines and inserts; newspapers; book publishing; and other. The activities of News Corporation are conducted principally in the United States, Continental Europe, the United Kingdom, Australia, Asia and the Pacific Basin. (NYSE10 facts) As William Shawcross (1992) wrote, "It is a phenomenal bounce back," From the researches we have undertaken in compiling this study, we have concluded that, although there was a recession in 1990 this, whilst a contributory factor, was not the core reason for the near failure of News Corporation. This report has investigated and explained the reasons why News Corporation is now one of the biggest conglomerates in the world and why its CEO Rupert Murdoch is still one of the most influential and powerful media personalities of modern times. This does not give the Company licence or complacency though, for in 2002 they received a financial reminder as to how fickle success can be. Like an old king, Rupert Murdoch mounted his throne last week to address his subjects, or shareholders, as they like to call themselves. He cheered his enemies immensely by reporting a $US6.3 billion ($A11.96 billion) loss for the year to June. (George Trefgarne 2002) In our opinion, there is one remaining concern lurking in the near future, which should be causing board members, shareholders and other stakeholders some sleepless nights. Rupert Murdoch is now in his seventies. As Damian Reece (2002) rightly observed, Rupert Murdoch is under pressure to sort out his succession. Whilst a Corporation run by a dominant CEO is attractive to investors and lenders, mainly because the business tends to be more focused and the decision making process more instant, which in itself provides a faster reaction to growth opportunities, the problem of succession is a major long term handicap. The tendency is for the dominant CEO to try to influence the succession decision, often in favour of a sibling. Rarely does such an option work. It is virtually impossible for a son or daughter to command the respect that was afforded to their parent and equally rarely that financial institutions would give the same level of support. Attracting CEO's on the open market would also not be straightforward as many would be reluctant to step into the shoes of such a magnetic personality. Thus the worry for News Corporation is whether they would survive a corporate 'near death' crisis in the future if Murdoch were not around. There is no doubt that the one good fortune, which befell Rupert Murdoch and his News Corporation in the winter of 1990, was the identity of the predator. Had the roles been reversed with Citibank in the role played out by the bank in Pittsburgh, there is little doubt that the global media corporation that is, in essence Rupert Murdoch, would not have survived. References Shawcross. William, (1992), Murdoch Simon & Schuster; Crainer, Stuart. (1999) Big Shots: Business the Rupert Murdoch Way Capstone Publishing Ltd Chenoweth, Neil. (2002) Virtual Murdoch, Vintage UK Trefgarne, G. (2002) A King who can't afford to die. Retrieved from the World Wide Web http://www.theage.com.au/articles/2002/08/19/1029114077293.html Fortune Global top Statistics from 500 July 2005 Walker, Andrew. (2002), Rupert Murdoch: Bigger than Kane. News reporting for BBC Revenue and Value. (2005), Financial statements, News Corporation.com Reece, Damian. (2002) Murdoch has a bad heir day, The Independent, UK Burns, Alex. The Art of Mega Deals: Rupert Murdoch and Pragmatic Foresight, Australian Foresight Institute/Disinformation Lanchester, John. (Feb 2004), None Titled Article, London Review of books Cohen, Roger. (1990) Rupert Murdoch's Biggest Gamble, Magazine News Colqhuoun, L. (2002), Murdoch News Corporation dumps Andersen, The Evening Standard, UK Farhi, Paul. (1997), Murdoch Empire finds business not so taxing, Washington Post, page 101 Simurda, S, J. (1995) The Global Murdoch: Back on Top of the World, Retrieved from the World Wide Web http://www.umass.edu/journal/faculty/steve/unpubarticles/murdoch.html Galloway, S. & Parisi. (2005) Dreamer from Down Under. Retrieved from the World Wide Web http://www.hollywoodreporter.com/thr/film/feature_display.jspvnu_content_id=1001479109 Clarke, Frank. Dean, Graeme and Oliver, Kyle, (2003). Corporate Collapse: Accounting, Regulatory and Ethical Failure. Cambridge University Press. UK Read More