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News Corp. Wants the Rest of Fox

1/10/2005 3:59 AM Eastern

News Corp. has made a tender offer for the 18% of Fox Entertainment Group stock it doesn’t already own, offering to swap 1.9 shares of News Corp. stock for each share of Fox tendered.

The offer, valued at about $5.4 billion, represents a 7.4% premium ($33.54 per share) to Fox’s trading price Jan. 7 and a 16.9% premium to Fox’s six-month average trading price.

Fox shares surged on the offer, which has been expected for months. They were up 10.4% ($3.23 per share) in Monday-morning trading to $34.45 each. News Corp. stock was down 11 cents each to $18.12 in early trading.

The deal has been expected since News Corp. reincorporated in the United States late last year. News Corp. owns 82% of Fox’s outstanding shares and 97% of the company’s vote.

News Corp. sold 18% of Fox Entertainment to the public in 1998 mainly to give the media giant a U.S.-based stock -- News Corp. was an Australian-based company until the domicile shift to Delaware in November. With News Corp. now headquartered in the United States, the need to have a separately traded Fox was diminished.

Fox Entertainment includes the Fox broadcasting network, its television stations, the 20th Century Fox movie studio, cable networks (such as FX, Speed Channel and Fox News Channel) and a 34% equity interest in DirecTV Group Inc.

Fox is expected to appoint a special committee of independent directors to evaluate the proposal.

Simplifying the company’s structure could make it easier for News Corp. to make future acquisitions, but some analysts believe the company will have to adjust its price.

In a research report, Lehman Bros. Inc. analyst Vijay Jayant wrote that the offer was “a little low,” adding that News Corp. could offer a premium as high as 14.8% without it being dilutive to earnings.

September