News Corp shares had their biggest decline in 18 months on concern Rupert Murdoch paid too much to gain control of DirecTV, and the issue of new stock to fund the US$6.6 billion purchase will dilute earnings per share.
News Corp shares fell US$0.88, or 7.5 percent, to A$10.85 at 2:50pm in Sydney, wiping out most of the 10 percent gain in the past two weeks as Murdoch emerged as the sole bidder for General Motors Corp's stake in DirectTV owner Hughes Electronics Corp.
Murdoch agreed to pay 22 percent more than Hughes' closing price yesterday to win control of the largest satellite-TV service in the US and Latin America, securing distribution for his Fox network. He already has pay-TV businesses in Asia, Europe, South America and Australia.
"Ideally, the market would have preferred it if News Corp had bought it for less," said Scott Maddock, who helps manage the equivalent of US$6.1 billion at BT Funds Management Ltd and holds News Corp stock.
News Corp will buy General Electric's 20 percent stake in Hughes for US$3.8 billion, or US$14 a share. About US$3.1 billion of that will be in cash. The company will also offer other holders US$14 a share in cash or News Corp depositary receipts for 14 percent of Hughes.
At a value of US$22.40 per ADR, News Corp may issue 34.3 million preferred ADRs to General Motors and 122.2 million to shareholders, raising concern the purchase will lower earnings per share.
The issue of new stock will dilute earnings per share by about 13 percent in the next six months, said Scott Marshall, an analyst at Shaw Stockbroking Ltd.
"You have to hold your hand on you heart and believe Murdoch can make significant changes to extract value," he said.
News Corp's preferred shares fell A$0.94, or 9.7 percent, to A$8.76. More than 28 million of the ordinary shares traded, making News Corp the second most active stock on the Australian Stock Exchange.
DirecTV is growing more slowly than smaller rival EchoStar Communications Corp. as both lure customer away from cable services.
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