21st Century Fox 14 Jan 14

Adios, Foxy lady

Last week’s announcement by 21st Century Fox (ASX: FOXLV) to begin the share delisting process from the Australian Stock Exchange (ASX) comes as no surprise. Following the demerger implemented in June last year, the company has very little operating presence ‘Down Under’. The company’s previous interests in Australian print media assets, pay TV and digital assets (REA Group) are now all held in the newly spun-off News Corporation entity (ASX: NWS, ASX: NWSLV) which, incidentally, will remain listed on the ASX.

While there is nothing to stop Members from holding onto their 21st Century Fox shares once they are solely listed on the NASDAQ in the US, the Fat Prophets’ Australasian Equities portfolio is primarily focused on ASX-listed stocks.

Furthermore, we believe the delisting proposal provides the ideal opportunity to crystallise the tremendous gains on the stock since it was first introduced into the portfolio back in November 2012 (FAT-AUS-600) when the stock price was just $21.56 (split-adjusted).

Certainly, our positive investment view on the stock has been vindicated, given the consistent delivery of robust earnings growth, attractive asset mix (particularly Cable Programming) and the strengthening financial position.

Therefore, we recommend that Members sell their shares in 21st Century Fox around current prices.

Purely as a way of note, the US listing of the stock was also recommended, and continues to be held, in our US equities portfolio, which is focused on US listed stocks.

Looking at the charts, a sustained break above resistance at $36.11 saw prices move higher, reaching $39.74. However, recent heavy selling following the delisting announcement has resulted in a gap opening, which in itself is indicative of further downside. 

Delisting from the ASX

Last week, the Board of 21st Century Fox announced that the company had begun the process to delist from the Australian Stock Exchange (ASX) and for the shares to trade solely on the NASDAQ in the US.

The proposal is subject to approval of holders of the voting shares (ASX: FOX), although we do not see this as an impediment, as the Murdoch family (which is entitled to vote on the transaction) controls 39.4 percent of the voting stock and there are substantial US shareholders on the register who certainly would not object to delisting from the ASX.

While the official reason for the proposal is “to simplify the operating and capital structure of” 21st Century Fox, the proposed ASX delisting was always on the cards once the company was demerged from the old News Corporation empire.

Indeed, 21st Century Fox now has very little operational presence in Australia, with all its interests in Down Under print media assets, pay TV and digital assets (REA Group) held in the new spun-off News Corporation entity (ASX: NWS, ASX: NWSLV) which, incidentally, will remain listed on the ASX.

As the following table shows, assuming all regulatory processes are completed smoothly, shares in 21st Century Fox are likely to leave the ASX in April or May of this year:

Source: Company announcement

Of course, existing Australian investors are free to continue holding their 21st Century Fox shares once they are transferred to the NASDAQ, and use US stockbrokers to trade the securities. Furthermore, the company has undertaken to provide a Direct Registration System Sales Facility, enabling former ASX-listed shareholders to sell their holdings on NASDAQ and have the option of receiving proceeds in Australian Dollars.

However, given the tremendous capital appreciation since the stock was first drafted into the Fat Prophets portfolio back in November 2012 when the stock price was just $21.56 (split-adjusted), we see the ASX-delisting event as providing a good opportunity to crystallise the strong gains and exit the stock.

Summary

The decision by 21st Century Fox to delist the company’s shares from the ASX is perfectly understandable, given no direct operating assets in Australia. Had the decision to leave the local bourse happened a year ago, we would have been especially disappointed, due to our favourable views on the global media giant’s enviable suite of assets, robust earnings outlook and the long-tailed capital management potential.

However, at current prices, the stock has delivered stellar gains since its initial recommendation back in November 2012 when it was at just $21.56 (split-adjusted). Consequently, we believe the pending departure of the stock from the ASX now provides an opportune time to lock in the strong capital appreciation.

Consequently, we recommend that Members Sell all their holdings in 21st Century Fox around current prices. The stock will also be taken out of the Fat Prophets Australia portfolio.

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