Magazine article Variety

Cash of the Titans

Magazine article Variety

Cash of the Titans

Article excerpt

The parlor-room drama surrounding the fates of Viacom and CBS Corp. has only reinforced how thoroughly Sumner Redstone has exerted control over his media empire for decades.

And Rupert Murdoch's succession plans at 21st Century Fox and News Corp. has all the intrigue of royal-court maneuvering among heirs to the throne held by an ironwilled king.

All those companies arc publicly traded entities, but their respective boards and shareholders won't actually call the shots when the time comes for decisions on succession. Redstone and Murdoch, like a number of their peers in media and entertainment, own so much voting stock in their companies that they can rule, and overrule, as they see fit. So does Brian Roberts, chairman-CEO of Comcast, whose pending merger with Time Warner Cable has sparked the latest round of debate on the "how big is too big" question for media behemoths.

In fact, most of the major U.S. media congloms are among the small percentage of large publicly held U.S. firms that are tightly controlled by a single dominant shareholder. Cablevision, Liberty Media and Discovery Communications and others also operate with a dual-class stock structure that allows for some to hold preferred shares with expanded voting rights and benefits compared with the shares that are sold to the public. The Walt Disney Co. and Time Warner are the exceptions, with no single uber-shareholder able to sway decision-making.

Preferred shares tend to be held by company insiders and their family members, particularly founders such as Mur- § doch or architects such as Reefstone, who orchestrated the acquisition of Viacom in 1987 and CBS in 2000 through his National Amusements holding company, a private entity. Such shares are typically issued at the time of incorporation or initial public offering, and cannot be purchased via public markets.

"Dual-class stock structures are not particularly well liked by investors," said Richard Greenfield, media analyst for BTIG Research. Yet Greenfield noted that bifurcated voting rights have pluses and minuses for companies.

With federal regulators still sizing up the pros and cons of Comcast's $45.2 billion expansion bid, it's worth noting that control of the company still rests with its founding family, the Roberts clan of Philadelphia. Brian has a firm grip * on the conglom through ownership of preferred shares that account for 33.3% of voting rights - a stake that will not be diluted if the TW Cable acquisition is completed.

By all accounts, Roberts has done a masterful job of expanding the once-tiny cable company his father founded in 1963. Since he took the reins as president in 1990. Comcast has outperformed the S&P average by more than 1,100 percentage points. Still, those preferred voting shares mean the company's common-stock shareholders would have a hard time forcing him out if they ever decided they didn't like what he was doing.

As the Justice Dept, and the FCC prepare make-or-break decisions on the antitrust and public-interest ramifications of the TW Cable deal, expected to come down within a month or so, consumer groups and some competitors are howling about the deal's potential to turn Comcast into the "gatekeeper" for content delivered via the Internet, by expanding the firm's broadband footprint. There's been less focus on the fact that an enlarged Comcast would still be effectively controlled by one family.

The Roberts clan had an even tighter hold on the company prior to its 2002 acquisition of AT&T's cable systems - the $48 billion deal that made Comcast the nation's largest cable operator. As a condition of that acquisition, Roberts agreed to reduce his preferred shares down from 87% of all voting rights.

Roberts and Comcast's management team have long received high marks for accountability and for engaging with investors. But the prospective scope of the company's reach into America's living rooms, with a service that has become a household utility, has stirred enough vociferous opposition to raise doubts about the feds approving the transaction. …

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