Edgar Filing: NEWS CORP LTD

Form 6-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of September 2004 (September 15, 2004)

Commission File Number: 1-9141

THE NEWS CORPORATION LIMITED

(Name of Registrant)

2 Holt Street, Sydney, New South Wales, 2010, Australia

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F:


Form 20-F x		Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):


Yes ¨		No x

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):


Yes ¨		No x

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:


Yes ¨		No x

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): Not Applicable

Annexed hereto are the following documents: (i) a release by News Corporation announcing that it has received approval from the Australian Federal Court to convene meetings of shareholders to vote on its proposal to reincorporate from Australia to the United States (the “Reorganization”); (ii) the Information Memorandum that is being mailed to shareholders and optionholders of The News Corporation Limited (“News Corporation”) relating to the proposed Reorganization; (iii) the Memorandum to Holders and Beneficial Owners of News Corporation American Depositary Shares (“ADSs”) regarding the proposed Reorganization; (iv) the Depositary’s Notice of Shareholders’ Meetings which the Depositary, Citibank, N.A., is sending to the holders of ADSs representing Ordinary Shares; (v) the Depositary’s Notice of Shareholders’ Meetings which the Depositary is sending to the holders of ADSs representing Preferred Shares; (vi) the ADS Voting Instructions card for holders of ADSs representing Ordinary Shares; and (vii) the ADS Voting Instructions card for holders of ADSs representing Preferred Shares.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		THE NEWS CORPORATION LIMITED

Date:	September 15, 2004	By:	/S/ ARTHUR M. SISKIND

			Arthur M. Siskind
			Director

EXHIBIT INDEX


Exhibit
A.		Press Release.

B.		Information Memorandum.

C.		Memorandum to Holders and Beneficial Owners of News Corporation ADSs.

D.		Depositary’s Notice of Shareholders’ Meeting for holders of ADSs representing Ordinary Shares.

E.		Depositary’s Notice of Shareholders’ Meeting for holders of ADSs representing Preferred Shares.

F.		ADS Voting Instructions card for holders of ADSs representing Ordinary Shares.

G.		ADS Voting Instructions card for holders of ADSs representing Preferred Shares.

Exhibit A

LOGO

N E W S R E L E A S E

For Immediate Release

Australian Federal Court Approves Shareholder

Meetings to Vote on Proposed Reincorporation

Shareholders to Receive Information Memorandum This Month;

Meetings to be Held October 26

NEW YORK, NY, September 15, 2004 – News Corporation today announced that it has received approval from the Australian Federal Court to convene meetings of shareholders to vote on its proposed reincorporation from Australia to the United States.

The company today filed an Information Memorandum and an Independent Expert’s Report related to the proposal with the Australian Stock Exchange (ASX). The Information Memorandum and Independent Expert’s Report will be mailed to shareholders within the next two weeks.

The scheme meetings will be held immediately after the company’s Annual General Meeting in Adelaide, Australia on Tuesday, October 26, 2004.

The Information Memorandum states that:

The Special Committee of Non-Executive Directors established to evaluate the proposal has unanimously recommended the transaction to the Company Board;

The Board concludes that the proposed transaction is in the best interests of shareholders and option holders and states that the directors of News Corporation unanimously recommend its approval by shareholders and option holders;

The independent expert, Grant Samuel & Associates, concludes that the proposal is in the best interests of News Corporation’s shareholders as a whole as well as each class of shareholders and option holders.

News Corporation Chairman and Chief Executive Rupert Murdoch said: “I and my fellow directors urge shareholders to carefully consider the detailed materials being sent to them and to vote in favour of this proposal.”

Mr. Murdoch said the proposal was designed to make News Corporation a more attractive investment to shareholders and that he believes the proposal has potential benefits for shareholders.

1211 AVENUE OF THE AMERICAS · NEW YORK, NEW YORK 10036 · newscorp.com


		The News Corporation
		N E W S R E L E A S E

These benefits include:

·	Enhanced US-based demand for the company’s shares, over time, resulting from an expanded active US shareholder base and the expected inclusion in major US indices;

·	Potential narrowing of the trading discount of the non-voting shares relative to the voting shares, further enhancing the relative value of the non-voting shares;

·	Improved access to a larger pool of capital available in the US, which should provide greater financial flexibility and improved pricing for capital raisings and acquisition purposes;

·	Full consolidation and control of the QPL Publishing Business, a newspaper business with strong growth and profitability characteristics;

·	Reduced corporate complexity; and

·	External reporting in a manner consistent with News Corporation’s peer group in the US.

The reincorporation proposal requires, among other things, the approval of News Corporation’s ordinary shareholders, preferred shareholders and option holders under schemes of arrangement and the approval of News Corporation’s shareholders of a capital reduction under Australian law.

Through the schemes of arrangement and the capital reduction, holders effectively exchange their shares in News Corporation for shares in News Corp US, a Delaware company.

Holders will be able to vote on the proposal either by proxy or in person at the scheme meetings.

If the proposal is approved, News Corporation will be reincorporated in the US and its primary listing will move from the ASX to the New York Stock Exchange (NYSE). The company will retain secondary listings on the ASX and on the London Stock Exchange (LSE).

The directors believe that the proposed transaction creates an opportunity for News’s shares to be included in the S&P500 and other major US stock indices in the future.

If the schemes of arrangement are approved by shareholders and option holders, News Corporation will apply to the Australian Federal Court for final approval. It is expected that, if all required approvals are obtained, the transaction will be completed in November 2004.

Page 2

1211 AVENUE OF THE AMERICAS · NEW YORK, NEW YORK 10036 · newscorp.com


		The News Corporation
		N E W S R E L E A S E

Further information

For Media and Analysts



In Australia		Greg Baxter, Director, Corporate Affairs
		(612) 9288 3242 Mobile 0419 461 368

In the U.S.		Media: Andrew Butcher, Vice President, Corporate Communications
		(212) 852 7070

		Analysts: Reed Nolte, Senior Vice President, Investor Relations
		(212) 852 7092

		Craig Felenstein, Director, Investor Relations
		(212) 852 7084

For Shareholders



In Australia		call 1300 733 343 toll free

In the USA		call 1 800 506 7142 toll free

The complete Information Memorandum and Independent Expert’s Report is available on the company’s website at www.newscorp.com

The News Corporation Limited (NYSE: NWS, NWS.A; ASX: NCP, NCPDP) had total assets as of June 30, 2004 of approximately US$52 billion and total annual revenues of approximately US$20 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.

Page 3

1211 AVENUE OF THE AMERICAS · NEW YORK, NEW YORK 10036 · newscorp.com

Exhibit B

LOGO

THE NEWS CORPORATION LIMITED

ABN 40 007 910 330 (News Corporation)

Information Memorandum in relation to a proposal to “re-incorporate” in the United States and to acquire from Murdoch family interests their shareholding in Queensland Press Pty Limited.

The Directors of News Corporation unanimously recommend that you vote in favour of the schemes of arrangement and related resolutions necessary to implement the proposed transaction. The Independent Expert has concluded that the proposed transaction is in the best interests of News Corporation’s Shareholders and Optionholders.

This is an important document and requires your immediate attention. It should be read in its entirety. If you are in doubt as to what you should do, you should consult your investment or other professional adviser.

Timetable

Sunday, 24 October 2004

Eligibility to vote at the AGM, Scheme Meetings and Capital Reduction Meeting determined at 8:00 pm (Adelaide time)

Monday, 25 October 2004

Proxy forms for the AGM, Scheme Meetings and Capital Reduction Meeting must be received no later than 9:00 am (Adelaide time)

Tuesday, 26 October 2004

Meetings to be held at the Adelaide Hilton International Hotel, 233 Victoria Square, Adelaide, South Australia beginning at 10:00 am (Adelaide time):


10:00 am		AGM
not before 10:30 am*		Share Scheme Meeting of Ordinary Shareholders
not before 10:45 am*		Share Scheme Meeting of Preferred Shareholders
not before 11:00 am*		Capital Reduction Meeting
not before 11:15 am*		Option Scheme Meeting

*Each of the meetings following the AGM will commence at the later of the time indicated above or the end of the preceding meeting. The indicated times are times before which the meetings will not commence, and are not intended to limit debate at any prior meeting. The Murdoch Family and their associates will not vote with other Shareholders and Optionholders at the Scheme Meetings. They will vote on the Schemes at separate meetings to be held immediately prior to the AGM.

Wednesday, 3 November 2004

Court hearing for approval of the Schemes

Effective Date of the Schemes

Last day of trading in Ordinary and Preferred Shares

•

ADSs representing Ordinary and Preferred Shares will cease trading on the NYSE on Tuesday, 2 November 2004 US Eastern Standard Time

Thursday, 4 November 2004

News Corp US CDIs commence trading on the ASX on a deferred settlement basis

•

News Corp US shares commence trading on the NYSE on a when-issued basis on Wednesday, 3 November 2004 US Eastern Standard Time

Wednesday, 10 November 2004

Record Date

Friday, 12 November 2004

Implementation Date

•

News Corp US shares commence trading on the NYSE on a regular-way basis on Friday, 12 November 2004 US Eastern Standard Time

Thursday, 18 November 2004

Despatch of holding statements and transmittal letters

Last day of deferred settlement trading on the ASX

Friday, 19 November 2004

News Corp US CDIs commence trading on the ASX on a T+3 basis

Wednesday, 24 November 2004

First settlement of deferred settlement trades on the ASX

All dates following the date of the Scheme Meetings and Capital Reduction Meeting are indicative only and, amongst other things, are subject to the Court approval process and ASX approval.

Date: This Information Memorandum is dated 15 September 2004

Attachment A – Comparison of class rights and of US/Delaware and

Australian corporate laws

1.	Summary

This attachment is a summary only of the class rights attaching to News Corp US capital stock, and of the rights and protections of News Corp US shares. It contains summaries of various provisions of News Corp US’s restated certificate of incorporation and by-laws, and of relevant provisions of the General Corporation Law of the State of Delaware, which is referred to as Delaware law. Since the terms of the restated certificate of incorporation, by-laws and Delaware law are more detailed than the general information provided below, you should rely on the actual provisions of those documents and Delaware law. If you would like to read News Corp US’s restated certificate of incorporation or by-laws, these documents are available free of charge by writing to:

Company Secretary

The News Corporation Limited

GPO Box 4245 Sydney NSW 2001

Australia

Facsimile: +61 2 9288 3275

Email: brodiek@newsltd.com.au

Copies of these documents can also be viewed on News Corporation’s website at www.newscorp.com.

2.	Class rights attaching to News Corp US Capital Stock

2.1

Description of News Corp US capital stock

News Corp US’s certificate of incorporation authorises the issue of up to 9,200,000,000 shares, comprising:

•

6,000,000,000 shares of class A common stock, par value of US$0.01 per share (the News Corp US Non-Voting Common Stock);

•

3,000,000,000 shares of class B common stock, par value of US$0.01 per share (the News Corp US Voting Common Stock);

•

100,000,000 shares of series common stock, par value of US$0.01 per share; and

•

100,000,000 shares of preferred stock, par value of US$0.01 per share.

On implementation of the Share Scheme, shares of News Corp US Voting Common Stock (or CDIs in respect of such shares) will be issued to News Corporation Ordinary Shareholders in exchange for their Ordinary Shares and shares of News Corp US Non-Voting Common Stock (or CDIs in respect of such shares) will be issued to Preferred Shareholders in exchange for their Preferred Shares.

A-1

2.2

Class rights attaching to News Corp US Voting Common Stock

The class rights attaching to the News Corp US Voting and Non-Voting Common Stock can be summarised as follows:

(a)

Voting rights

(Voting Common Stock) As a general matter, each of the shares of News Corp US Voting Common Stock entitles the holder to one vote per share on all matters on which stockholders have the right to vote. In this respect, the voting rights attached to News Corp US Voting Common Stock are substantially the same as those attaching to Ordinary Shares in News Corporation.

(Non-Voting Common Stock) As a general matter, the shares of News Corp US Non-Voting Common Stock do not have voting rights. However, holders of shares of News Corp US Non-Voting Common Stock do have the right to vote, together with holders of shares of News Corp US Voting Common Stock, in the following limited circumstances:

(i)

on a proposal to dissolve News Corp US or to adopt a plan of liquidation for News Corp US (and with respect to any matter to be voted on by stockholders following adoption of such a proposal or plan);

(ii)

on a proposal to sell, lease or exchange all or substantially all of the property and assets of News Corp US;

(iii)

on a proposal to adopt an agreement of merger or consolidation in which News Corp US is a constituent corporation, as a result of which the stockholders of News Corp US prior to the merger or consolidation would own less than 60% of the voting power or capital stock of the surviving corporation or consolidated entity (or the direct or indirect parent of such corporation or entity) following the merger or consolidation;

(iv)

with respect to a matter to be voted on by stockholders during a period in which a dividend (or part thereof) in respect of the News Corp US Non-Voting Common Stock has been declared and remains unpaid once due,

provided that such right to vote with the News Corp US Voting Common Stock will not apply in relation to any of the above matters where the News Corp US Non-Voting Common Stock already has a right to vote as a class in relation to such matter by law.

The voting rights of News Corp US Non-Voting Common Stock are broadly similar to those attaching to Preferred Shares in News Corporation, but there are important differences. These arise for a number of reasons, including because of differences between Australian law and Delaware law and, in certain instances, because of what is customary for non-voting common stock in a Delaware listed company. By way of comparison, News Corporation’s constitution states that Preferred Shares confer on the holder the right to vote, together with Ordinary Shareholders as one class, in the following circumstances and not otherwise:

(i)

on a proposal to reduce the share capital of the company;

(ii)

on a proposal to wind up or during the winding up of the company;

(iii)

on a proposal for the disposal of the whole of the property, business and undertaking of the company;

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(iv)

on a proposal that affects rights attached to the Preferred Share;

(v)

during any period which a dividend in respect of the Preferred Shares is arrears; and

(vi)

on a resolution to approve the terms of a buy-back agreement.

In instances where the News Corp US Non-Voting Common Stock is entitled to vote with the News Corp US Voting Common Stock, each share of News Corp US Non-Voting Common Stock will entitle the holder to one vote.

The reason that the News Corp US Non-Voting Common Stock has no right to vote on a capital reduction or buy-back is that, under Delaware law, no stockholder approval is required in order for the Board of a corporation to resolve to reduce the capital of the corporation (other than for a reduction effected by reducing the par value of the shares of the company) or to buy back shares in the corporation. To require a stockholder vote in these circumstances would therefore be inconsistent with usual custom and practices.

The reason that the News Corp US certificate of incorporation does not expressly refer to the News Corp US Non-Voting Common Stock having a right to vote on a proposal that affects rights attached to the Non-Voting Common Stock is that Delaware law provides for a class vote (whether or not the shares are ordinarily entitled to vote) on amendments to the certificate of incorporation which would increase or decrease the par value of the shares of such class, or alter the powers, preferences or special rights of the shares of that class so as to affect them adversely.

One area in which the voting rights of News Corp US Non-Voting Common Stock and News Corporation Preferred Shares are materially different is in relation to the issue of further preference shares. News Corporation’s constitution provides that the issue of other preference shares ranking in any respect prior to the Preferred Shares is deemed to be a variation of the rights attached to the Preferred Shares, which gives the holder of a Preferred Share a right to vote on the issue at a separate class meeting of Preferred Shares (at which a special resolution would be required to approve the issue) and at a meeting of Shareholders under (iv) above. This protection does not exist for News Corp US Non-Voting Common Stock and, as is noted below, the News Corp US certificate of incorporation allows for the issue of preferred stock and series common stock by the Board at any time without stockholder approval, with such voting, dividend and liquidation rights as the Board may determine.

(b)

Dividends

(Voting Common Stock) Subject to the rights of any outstanding Preferred Stock or Series Common Stock, the holders of shares of News Corp US Voting Common Stock are entitled to such dividends as are declared thereon by the Board from time to time in its sole discretion out of the assets or funds of the corporation legally available therefor.

(Non-Voting Common Stock) Subject to the rights of any outstanding Preferred Stock or Series Common Stock, the holders of shares of News Corp US Non-Voting Common Stock are entitled to the following dividends:

(i)

with respect to fiscal years 2005, 2006 or 2007, if dividends are declared by the Board on the News Corp US Voting Common Stock, each share of News Corp US Non-Voting

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Common Stock confers on the holder the right to receive (in the case of cash dividends), non-cumulative dividends equal to the greater of:

(A)

the amount which has been declared by the Board on the share of News Corp US Non-Voting Common Stock with respect to such fiscal year (but not to exceed US$0.10 per share with respect to that fiscal year); and

(B)

an amount equal to 120% of the aggregate of all cash dividends declared with respect to such fiscal year on a share of News Corp US Voting Common Stock;

(ii)

with respect to fiscal year 2008 and thereafter, an amount equal to the dividends declared on the News Corp US Voting Common Stock in respect of such fiscal year.

Preferred Shareholders should note that the dividend rights attached to News Corp US Non-Voting Common Stock are similar (in terms of the right to receive a greater amount of dividends) to those attaching to News Corporation Preferred Shares up to and including fiscal year 2007, but that with respect to fiscal year 2008 and thereafter, the two classes are entitled to receive the same cash dividends and therefore the News Corp US Non-Voting Common Stock ceases to carry any right to a greater dividend than the News Corp US Voting Common Stock.

(c)

Liquidation

Under News Corp US’s certificate of incorporation, in the event of a liquidation, dissolution or winding up of the corporation, the holders of News Corp US Voting Common Stock and News Corp US Non-Voting Common Stock rank equally in the distribution of any funds or assets available for distribution to those two classes of stock. They may rank after all or some of the holders of series common stock or preferred stock, if shares of such stock are issued with liquidation preferences.

Under the constitution of News Corporation, in the event of a winding up of the company, the holders of Preferred Shares are entitled to a refund of their capital and to receive payment of any unpaid dividends on their shares after such sums have been paid to the holders of converting preference shares (if any have been issued) but before such sums are paid to the holders of Ordinary Shares.

(d)

Preferred Stock and Series Common Stock

Under the News Corp US certificate of incorporation, the Board of News Corp US is authorised to issue shares of preferred stock or series common stock at any time, without stockholder approval, and to determine all the terms of those shares, including the following:

(i)

the voting rights, if any;

(ii)

the dividend rate and preferences, if any, which that preferred stock or series common stock will have compared to any other class; and

(iii)

the redemption and liquidation rights and preferences, if any, which that preferred stock or series common stock will have compared to any other class.

Shareholders should note that any of these terms could have an adverse effect on the availability of funds or other assets for distribution to the holders of News Corp US Voting Common Stock and/or Non-Voting Common Stock, or for other corporate purposes. Similarly, voting rights of holders of preferred stock or series common stock could adversely affect the voting power of

A-4

holders of News Corp US Voting Common Stock and/or Non-Voting Common Stock and could have the effect of delaying, deferring or impeding a change of control of News Corp US. This could protect the continuity of News Corp US management and possibly deprive stockholders of an opportunity to sell their News Corp US Voting Common Stock and/or Non-Voting Common Stock at prices higher than prevailing market prices. Any decision by the News Corp US Board to issue Preferred Stock or Series Common Stock must, however, be taken in accordance with the Board’s fiduciary duty to act in the best interest of the company’s shareholders.

3.	US/Delaware corporate laws and News Corp US’s certificate and by-laws vs Australian corporate laws and News Corporation’s constitution

3.1

Governing laws

News Corp US is incorporated in the United States under the laws of the State of Delaware. News Corporation is incorporated in Australia under the laws of South Australia. If the Schemes are approved, News Corporation Shareholders, whose rights are currently governed by the laws of Australia and the constitution of News Corporation will, upon implementation of the Share Scheme, become holders of News Corp US shares (or CDIs in respect of such shares) and their rights as such will be governed by Delaware law, US federal securities laws, the listing rules of the NYSE and News Corp US’s restated certificate of incorporation and by-laws. A comparison of some of the material provisions of the two regimes is set out below.

In addition to the US laws referred to in the above paragraph, the rights of stockholders of News Corp US, as a company listed on the ASX, will also be governed by the ASX listing rules. News Corp US has elected to apply for a full listing, rather than an exempt foreign listing, on the ASX. Exempt foreign listings are available to foreign companies which are listed on another stock exchange and have significant net tangible assets. A company listed on the ASX in the exempt foreign category is not required to comply with many ASX listing rules, instead such companies are almost exclusively regulated in accordance with the laws and rules of their home jurisdiction. A foreign company with a full listing on the ASX must comply with all the listing rules of the ASX, subject to any specific waivers obtained from the ASX. News Corp US has sought and obtained specific waivers from the ASX of some ASX listing rules. These waivers are described in detail in Section 8.11 of the Information Memorandum.

References to “Australian law” where they appear below are references to the Corporations Act, ASX listing rules and Australian common law, as applicable. References to “Delaware law” are references to the General Corporation Law of the State of Delaware or the common law of Delaware, as applicable. The comparison below is not an exhaustive statement of either the relevant Australian or Delaware law.

3.2

General meetings

(a)

Calling meetings

Under Australian law, the annual general meeting of News Corporation is required to be held within five months after the end of each financial year. Under Delaware law, News Corp US is required to have an annual meeting of stockholders and, if more than 13 months have passed since the last annual meeting, a stockholder may petition the court for an order compelling the holding of the annual meeting.

Under Australian law, a general meeting of News Corporation’s Shareholders may be called from time to time by the Board, individual directors or by Shareholders holding at least 5% of the total

A-5

votes that may be cast at the meeting. The Directors are required under Australian law to call a general meeting when requested to do so by Shareholders holding at least 5% of the votes that may be cast at the meeting or being at least 100 in number. Under News Corp US’s certificate of incorporation and by-laws, a special meeting of the stockholders of News Corp US may only be called by the Board of News Corp US or by the Chairman or Vice-Chairman. Unlike News Corporation Shareholders, News Corp US stockholders do not have the right to call special meetings of stockholders.

(b)

Notice of meetings

Under Australian law, notice of a general meeting of News Corporation must be given to the company’s shareholders at least 28 days before the date of the meeting. Under Delaware law, notice of a meeting of News Corp US’s stockholders must generally be given to stockholders not less than 10 days, and not more than 60 days, prior to the date of the meeting. The NYSE recommends a minimum 30 day solicitation period and in general companies endeavour to provide at least this amount. Notice is deemed given when deposited in the US mail.

(c)

Quorum for meetings

News Corporation’s constitution states that the quorum for a general meeting of News Corporation’s shareholders is five shareholders. News Corp US’s by-laws state that the quorum for a meeting of News Corp US’s stockholders shall be the holders, present in person or by proxy, of a majority in voting power of all the outstanding shares of stock entitled to vote at the meeting. The quorum required for a News Corp US meeting is therefore much higher than that required for a News Corporation meeting.

(d)

Shareholders’ rights to bring business before a meeting

Under Australian law, Shareholders of News Corporation holding at least 5% of the votes that may be cast on the resolution or being at least 100 in number may, by notice to the company, propose a resolution for consideration at the next general meeting occurring more than two months’ after the date of their notice.

There is no similar statutory right provided to stockholders of News Corp US under Delaware law. Under the by-laws of News Corp US, any stockholder of record who is entitled to vote at the annual meeting may, by notice to the company not later than 45 days prior to the anniversary of the mailing of the company’s proxy material the preceding year, nominate persons for election to the Board or propose other business to be transacted at the annual meeting (provided such other business is a proper matter for stockholder action under Delaware law). In addition, under the US federal securities laws, a company may be required to include in its proxy statement, and present for vote at the annual meeting, certain proposals made by stockholders. Generally, stockholders who have owned for one year either 1% of the shares or US$2,000 worth of shares can require News Corp US to include a qualifying proposal and explanatory statement (not to exceed 500 words) in News Corp US’s proxy statement circulated in advance of the annual meeting on matters on matters in respect of which the stockholder is entitled to vote. Generally, corporate governance proposals meet the SEC’s qualification requirements which are set forth in SEC Rule 14a-8. The deadline set forth in Rule 14a-8 is 120 days before the date the prior year’s proxy statement was mailed. Note that a resolution to amend the certificate of incorporation of News Corp US is not a proper matter for stockholder action at an annual meeting of News Corp US unless the relevant amendment has been approved by the Board of the company.

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(e)

Voting majorities required to pass resolutions at a general meeting

Under Australian law, most resolutions put to News Corporation Shareholders require the approval of a majority of votes cast by those present and voting. Super majority approval is required under Australian law for “special resolutions”. Approval by special resolution of shareholders is required for actions such as modifying or repealing the company’s constitution, changing the company’s name or type, selectively reducing or buying back capital (in some circumstances), giving financial assistance in connection with the acquisition of shares in the company, and undertaking a voluntary winding up the company.

Under News Corp US’s by-laws, most resolutions put to News Corp US’s stockholders require the approval of a majority of the votes cast by those present and voting (in person or by proxy). The exceptions to this general rule are set out below.

•

Delaware law requires the approval of a majority of all votes entitled to be cast by News Corp US stockholders (not just a majority of all votes entitled to be cast by those News Corp US stockholders present and voting) for specified actions. These actions include:

(i)

dissolving the company;

(ii)

selling, leasing or exchanging all or substantially all of the company’s property and assets;

(iii)

merging or consolidating (with certain exceptions);

(iv)

removing a director; or

(v)

amending the company’s certificate of incorporation.

•

News Corp US’s certificate of incorporation requires that any resolution to amend the by-laws of the company or certain provisions of the company’s certificate of incorporation (those dealing with the number, election and removal of directors, regulatory restrictions on stock transfer / ownership, stockholder action by written consent, calling of special meetings, amendment of the by-laws or certificate of incorporation and the liability of directors) must be approved by 65% of all votes entitled to be cast by News Corp US stockholders on the resolution.

•

Under Delaware law and News Corp US’s by-laws, resolutions to elect directors (see election of directors below) require a plurality of the votes cast by stockholders at a meeting at which a quorum is present. A resolution to remove a director requires a majority of all votes entitled to be cast by News Corp US stockholders on the action.

3.3

Number and election of directors

(a)

Number of directors

News Corp US’s certificate of incorporation and by-laws provide that the Board will comprise not less than three directors, with the exact number of directors to be fixed from time to time exclusively by the Board. Immediately following implementation of the Share Scheme, the Board of News Corp US will be the same as the Board of News Corporation.

(b)

Election of directors

The certificate of incorporation and by-laws of News Corp US provide for the election of directors at that company’s annual meeting. The certificate of incorporation and by-laws of News Corp US

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include rotation provisions under which the Board is divided into three staggered classes, with the number of directors in each class being as nearly equal as possible. Each class is elected to hold office until the third annual meeting of stockholders after that class was elected or re-elected, at which time the directors in that class may seek re-election. However, with respect to the initial Board of News Corp US, the directors designated as Class I directors will initially serve until the third annual meeting following implementation of the Schemes, directors designated as Class II directors until the second annual meeting following implementation of the Schemes and Class III directors until the first annual meeting following the implementation of the Schemes.

Stockholders of record entitled to vote at an annual meeting who have complied with the notice and other requirements set forth in the by-laws of News Corp US may nominate persons for election to the Board at an annual meeting. Among other things, the by-laws require that a stockholder seeking to submit a nomination must deliver a notice to the secretary of News Corp US containing specified information regarding the proposed nominee, the stockholder giving such notice and the beneficial owner, if any, on whose behalf the nomination is made. The notice must be delivered not less than 45 nor more than 75 days prior to the first anniversary of the date on which News Corp US first mailed its proxy materials for the preceding year’s annual meeting of stockholders, subject to certain exceptions.

Voting on election of directors is by a plurality of the votes cast of the shares present in person or represented by proxy at the annual meeting and entitled to vote on the election of directors, provided that a quorum consisting of a majority of the shares entitled to vote is present or represented by proxy at the meeting. Under the plurality voting system, the directors elected at an annual meeting are those candidates receiving the highest number of votes at the election of directors at that meeting, irrespective of whether any such candidate has received a majority of the votes cast by stockholders at the meeting. This differs from the system applicable in Australia to News Corporation under which a director can only be appointed at a general meeting if the resolution to appoint that director is approved by a majority of the votes cast on the resolution.

(c)

Casual vacancies

News Corporation’s constitution authorises the Board to appoint a person to fill a casual vacancy (a vacancy that results from resignation, removal, disqualification or death) or as an additional director and a director so appointed holds office until the end of the next following general meeting of the company.

Similarly, News Corp US’s certificate of incorporation and by-laws authorise the Board to appoint a person to fill a casual vacancy or as an additional director. However, a director of News Corp US so appointed as an additional director holds office until the next election of the class of directors for which that director is chosen and a director appointed to fill a vacancy resulting from the death, removal or resignation of a director (or other cause) will hold office until the next election of the class to which his or her predecessor director was elected.

(d)

Removal

Under Australian law, the shareholders of News Corporation may at any time (and without cause) remove a director by passing a resolution to do so at a general meeting. The resolution must be passed by a majority of the votes cast by shareholders present and voting.

Under News Corp US’s certificate of incorporation, a director may only be removed for cause. Cause has been interpreted to include fraud, embezzlement, other misuse or conversion of corporate assets, usurpation of a corporate opportunity, gross misconduct or neglect, moral

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turpitude or other material malfeasance in office. Removal of a director for cause is extremely rare in a Delaware company. In addition, under Delaware law, to remove a director of News Corp US a resolution must be passed by a majority of all votes entitled to be cast by News Corp US stockholders on the resolution. As noted above, a stockholder in News Corp US has no right to call or compel a special meeting of stockholders between annual meetings to remove a director.

3.4

Powers and duties of directors

(a)

Powers

News Corporation’s constitution states that the business of the company shall be managed by the directors, who may exercise all powers of the company which are not, by law or other provisions of the constitution, required to be exercised by the company in general meeting.

Similarly, the certificate of incorporation of News Corp US states that the business and affairs of the company shall be managed by, or under the direction of the company’s Board.

(b)

Duties

Under Australian law, the directors of News Corporation have certain fiduciary obligations to the company. These fiduciary obligations include: a duty to act in good faith in the interests of the company; a duty to act for a proper purpose; a duty not to fetter their discretion; a duty to exercise care, skill and diligence; a duty to avoid conflicts of interest; a duty not to use their position to their advantage and a duty not to misappropriate company property.

Under Delaware law, the directors of News Corp US have similar fiduciary obligations. These fiduciary obligations are referred to under Delaware law as the duty of care and the duty of loyalty.

3.5

Issue of new shares

Subject to applicable laws and listing rules, News Corporation’s constitution authorises the Board to issue shares, options and other securities with preferred, deferred or other special rights or such restrictions, whether with regard to dividends, voting, return of capital etc as the Directors may decide.

The certificate of incorporation of News Corp US authorises the Board to issue up to an aggregate of 100 million shares of series common stock and a like number of shares of preferred stock at any time, without stockholder approval. The Board can, in doing so, confer on the series common stock or preferred stock preferences as to voting, dividends, redemption or liquidation. See the discussion in 2.2(d) above in relation to the effect this may have of diluting the voting, dividend, redemption or liquidation rights of the holders of News Corp US Voting Common Stock and News Corp US Non-Voting Common Stock.

Under Australian law, the Board of News Corporation may issue any number of new Preferred Shares without shareholder approval. Only Ordinary Shares, not Preferred Shares, are subject to the annual limit on share issuances found in the ASX listing rules. Subject to specified exceptions (for pro rata issues etc), the ASX listing rules apply to restrict News Corporation from issuing or agreeing to issue more Ordinary Shares than the number calculated below in any 12 month period unless News Corporation has shareholder approval:

•

15% of the total of: (i) the number of Ordinary Shares on issue 12 months before the date of the issue or agreement, plus (ii) the number of Ordinary Shares issued in the 12 months

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before the date of the issue or agreement without shareholder approval but pursuant to one of the specified exceptions; plus (iii) the number of Ordinary Shares issued in the preceding 12 months with shareholder approval; less (iv) the number of Ordinary Shares cancelled in that 12 month period;

•

less the number of Ordinary Shares issued in the preceding 12 months without shareholder approval and without the benefit of one of the specified exceptions.

As an ASX listed company, the annual limit on share issuances found in the ASX listing rules will apply to News Corp US after the Reorganisation in relation to issuances of News Corp US Voting Common Stock. The ASX has agreed that the annual limit will not apply to issuances of News Corp US Non-Voting Common Stock. As noted above, the annual limit does not currently apply to issuances of News Corporation Preferred Shares.

The number of shares of News Corp US Voting Common Stock and News Corp US Non-Voting Common Stock (and of any series of preferred stock or series common stock convertible into common stock) which may be issued by the Board without stockholder approval will be subject to limitation under the NYSE listing rules. The NYSE listing rules require stockholder approval of any issuance of common stock (or securities convertible into or exercisable for common stock) if the number of shares issued (or issuable) exceeds 20% of the number of shares of such class of common stock outstanding before the share issuance, except for public offerings for cash and private issues at a price at least equal to the book and market value of the common stock. Issuances that will result in a change of control also require stockholder approval under the NYSE listing rules.

3.6

Variation of class rights

Under Australian law and the constitution of News Corporation, rights attaching to a class of shares in the company can only be varied if approved at a general meeting of that class by 75% of votes cast by the shareholders present and voting. News Corporation’s constitution says that any issue of preference shares ranking prior to the Preferred Shares, shall be taken to be an issue of shares which has the affect of varying the rights of the Preferred Shares. In other words, preference shares ranking in priority to the Preferred Shares cannot be issued without the approval of Preferred Shareholders.

Under Delaware law, any amendment to the certificate of incorporation of News Corp US that adversely affects the rights, powers or preferences of a class of stock, or any change to the par value of a class of stock of News Corp US, must, in addition to any other vote required under the certificate of incorporation, be approved by that class by a majority of all votes entitled to be cast by the stockholders of that class.

Except as otherwise provided in the terms of any series of series common stock or preferred stock, the issuance of shares of any series of series common stock or preferred stock (assuming there were a sufficient number of authorised and unissued shares of such series) would not require a class vote of any class or series of stock of News Corp US.

3.7

Capital maintenance requirements

Under Australian law, shareholders of News Corporation at a general meeting must approve a capital reduction or share buy-back and there are restrictions on payments of dividends out of capital (see below).

Under Delaware law, subject to the NYSE listing rules described above, the directors of News Corp US are generally able to carry out capital reductions (other than reductions in par value) and share buy-backs without needing to obtain stockholder approval.

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3.8

Source and payment of dividends

Under Australian law, the directors of News Corporation may pay dividends only out of the company’s distributable profits and not out of share capital. Before declaring a dividend, the directors must be satisfied that the proposed dividend can be paid without causing the company to be unable to pay its debts as they fall due.

Under Delaware law, the directors of News Corp US may declare and pay dividends generally out of (i) the surplus of the company, which is defined to be the company’s net assets less statutory capital; or (ii) if no surplus exists, out of the net profits of the company for the fiscal year in which the dividend is declared and/or the preceding fiscal year.

3.9

Amendments to the constitution/certificate and by-laws

News Corporation constitution

Under Australian law, any amendment to News Corporation’s constitution must be approved by its shareholders. Specifically, a resolution to amend the constitution must be approved by 75% of the votes cast by shareholders present and voting on the resolution. Preferred Shareholders would not ordinarily be entitled to vote on a resolution to amend the company’s constitution. However, any amendment to the constitution which would vary the rights of holders of Preferred Shares (or any other class of shares), needs to be approved by 75% of the votes cast at a separate meeting of those shareholders.

Under Australian law, Ordinary Shareholders of News Corporation holding at least 5% of the voting shares in the company or being at least 100 in number may, by notice to the company, propose a resolution to amend the constitution of News Corporation for consideration at a general meeting of the company.

News Corp US certificate of incorporation

Under Delaware law, any amendment to the certificate of incorporation of News Corp US must first be approved by the company’s board and then by the company’s stockholders. Specifically, a resolution to amend the certificate of incorporation must be approved by holders of a majority of the votes entitled to be cast on the resolution by all stockholders. Holders of News Corp US Non-Voting Common Stock would not ordinarily be entitled to vote on a resolution to amend the company’s certificate of incorporation. However, Delaware law provides that holders of shares of a particular class shall be entitled to vote as a separate class on any resolution to amend the certificate of incorporation if the amendment would (i) increase or decrease the number of authorised shares of the class (unless the certificate of incorporation says otherwise); (ii) increase or decrease the par value of the shares of the class; or (iii) alter the powers, preferences or special rights of the class adversely. News Corp US’s certificate of incorporation provides that, subject to the terms of issue of any series common stock or preferred stock, no class vote of any stock is necessary to increase or decrease the authorised shares of a class of stock of News Corp US.

The certificate of incorporation of News Corp US imposes a higher voting majority than that which would otherwise apply under Delaware law for resolutions to amend certain provisions of the certificate of incorporation. Pursuant to the certificate of incorporation, approval of 65% of all votes entitled to be cast on the resolution by stockholders is required to amend those provisions of the certificate of incorporation dealing with the number, election and removal of directors, regulatory restrictions on stock transfer / ownership, stockholder action by written consent, calling of special meetings, amendment of the certificate of incorporation or by-laws and the liability of directors.

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News Corp US by-laws

Under Delaware law and News Corp US’s certificate of incorporation, amendments to the by-laws of News Corp US can be made with board or stockholder approval. The Board is authorised to amend the company’s by-laws at any time by a vote of the majority of the entire board.

Under Delaware law, any resolution put to stockholders to amend the by-laws of News Corp US must be approved by a majority of the votes entitled to be cast on the resolution by the stockholders who are present in person or by proxy at a meeting at which a quorum is present.

The certificate of incorporation of News Corp US imposes a higher voting majority than that which would otherwise apply under Delaware law for resolutions to amend the company’s by-laws. Pursuant to the certificate of incorporation, approval of 65% of all votes entitled to be cast on the resolution by stockholders is required for the stockholders to amend any of the company’s by-laws.

Under News Corp US’s by-laws, any stockholder entitled to vote at the annual meeting of stockholders may, by notice to the company not later than 45 days prior to the anniversary of the mailing of the company’s proxy materials the preceding year, propose a resolution to amend the by-laws of the company for consideration at the annual meeting. It is not necessary for the proposed resolution to have first been approved by the board.

3.10

Directors’ remuneration

Under the ASX Listing Rules and the constitution of News Corporation, the maximum amount to be paid to non-executive directors for their services as directors is not to exceed the amount approved by shareholders in general meeting. This Listing Rule will also apply to News Corp US as an ASX listed company.

The Australian Government has recently enacted legislation which gives shareholders of listed companies (such as Ordinary Shareholders of News Corporation) the right to participate in a non-binding vote, to be held at the annual general meeting, on the adoption of the remuneration report of the company. The remuneration report is included in the directors’ report and is to contain a discussion of the board’s policy in relation to remuneration of directors of the company. There is no equivalent provision to this under Delaware law.

3.11

Release from liability and indemnification of directors

(a)

Release from liability

Under Australian law, News Corporation cannot exempt a director from liability to the company incurred in his or her capacity as a director.

Under Delaware law, a company may include in its certificate of incorporation a provision eliminating the personal liability of a director to the company or its stockholders for monetary damages for breach of fiduciary duty as a director. However, the provision may not eliminate liability for: breach of the director’s duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, unlawful payment of dividends, unlawful purchases or redemptions of stock, or any transaction from which the director derived an

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improper personal benefit. The certificate of incorporation of News Corp US eliminates the liability of a director of News Corp US for monetary damages for breach of fiduciary duty to the extent permitted under Delaware law.

(b)

Indemnification

Under Australian law, a company cannot indemnify a director or officer against a liability owed to the company or related body corporate. As well, a company cannot indemnify a director or officer against the cost of legal proceedings where such proceedings result in them being found to have a liability to the company or a related body corporate.

Delaware law provides that, in the case of actions or suits brought against a director or officer by or in the name of the company, the company may indemnify the director or officer against expenses incurred if the individual acted in good faith and in a manner the individual reasonably believed to be in, or not opposed to, the best interests of the company. However, if the individual is adjudged liable to the company, the individual may be indemnified for his or her expenses only if, and to the extent that, a court determines that, despite the adjudication of liability, the individual is fairly and reasonably entitled to the indemnity.

Under Australian law, a company may indemnify a director or officer against a liability owed to someone other than the company or related body corporate (and also the cost of any related legal proceedings), provided the liability does not arise out of conduct involving a lack of good faith and is not a penalty or compensation order made under the Corporations Act.

Delaware law provides that, in the case of actions or suits brought against a director or officer (other than actions by or in the name of the company), the company may indemnify the director or officer against expenses, judgments, fines and amounts paid in settlement, actually and reasonably incurred by the individual, provided the individual acted in good faith and in a manner the individual reasonably believed to be in, or not opposed to, the best interests of the company and, with respect to any criminal proceeding, had no reason to believe was unlawful.

Under Delaware law, a company may advance the expenses of a director or officer in connection with such proceedings, subject to receipt of an undertaking from the director or officer to repay the amounts advanced if it is ultimately determined that the person was not entitled to indemnification.

There are some exceptions to the general rules referred to above. Under US federal securities laws, a US company may not, without court approval, indemnify directors and officers with respect to claims made in connection with registration statements filed with the US Securities and Exchange Commission. As well, indemnification under Delaware law may be limited by public policy in certain circumstances.

Both the constitution of News Corporation and the by-laws of News Corp US contain a provision requiring indemnification of the company’s directors and officers to the extent permitted by law. The by-laws of News Corp US also require the advancement of reasonable expenses to the company’s directors and officers to the extent permitted by law.

3.12

Transactions involving directors or officers

(a)

Shareholder approval

Australia’s Corporations Act prohibits News Corporation from giving directors a financial benefit unless it obtains the approval of shareholders or the financial benefit is exempt. Exempt financial

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benefits include indemnities, insurance premiums and payments for legal costs which are not otherwise prohibited by the Corporations Act and benefits given on arms’ length terms. Delaware law does not contain an equivalent provision.

The ASX listing rules prohibit News Corporation from acquiring a substantial asset from, or disposing of a substantial asset to, one of its directors unless it obtains the approval of shareholders. As well, the ASX listing rules prohibit News Corporation from issuing shares to a director unless it obtains the approval of shareholders or the share issue is exempt. Exempt share issues include issues made pro rata to all shareholders, under an underwriting agreement, under a dividend or distribution plan or under an approved employee incentive plan. The ASX listing rules will, following implementation of the Share Scheme, also apply to News Corp US as an ASX listed company.

In addition to the ASX listing rules, the NYSE listing rules will, following implementation of the Share Scheme, apply to News Corp US. The NYSE listing rules require stockholder approval for issues of common stock (or securities convertible into or exercisable for common stock) to directors, officers and certain related parties and, subject to certain exceptions, issues to substantial security holders if the number of shares issued (or issuable) exceeds either one percent of the number of shares of common stock or one percent of the voting power outstanding before the issue. In addition, the NYSE listing rules provide that, subject to certain exceptions, equity compensation plans require stockholder approval.

(b)

Declarations of interest etc

The News Corporation constitution states that a transaction between the company and an interested director is not avoided merely because of that interest. The Corporations Act generally requires a News Corporation director who has a material personal interest in a matter that relates to the affairs of a company to give the other directors notice of that interest. That director must not be present at a meeting where the matter is being considered or vote on the matter unless the other directors or ASIC approve, or the matter is not one which requires disclosure under the Corporations Act. Directors of News Corporation, when entering into transactions with the company, are subject to the common law and statutory duties to avoid conflicts of interest imposed by Australian law.

Under Delaware law, a contract or transaction between News Corp US and one or more of its directors or officers (or between News Corp US and any other entity in which any such person is a director or officer or has a financial interest) will not be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board or committee which authorises the contract or transaction, or solely because that director’s or officer’s votes are counted for such purpose if:

(i)

the material facts as to the director’s or officer’s relationship or interest and as to the contract or transaction are known to the Board or committee and the Board or committee in good faith authorises the contract or transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors may be less than a quorum; or

(ii)

the material facts as to the director’s or officer’s relationship or interest and as to the contract or transaction are disclosed or are known to stockholders and the contract or transaction is specifically approved in good faith by a vote of the stockholders; or

(iii)

the contract or transaction is fair to the company as of the time it is authorised, approved or ratified, by the Board, a committee or stockholders.

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3.13

Restrictions on transfer/ownership

Under Australian law, there are only limited circumstances in which News Corporation may refuse to register a transfer of shares. News Corporation may refuse to register a transfer where registration would result in a contravention of, or failure to observe, the provisions of a law of Australia. A provision allowing News Corporation to refuse registration in such circumstances is contained in the company’s constitution.

Under Delaware law, a company may refuse to register a transfer of shares when a transfer restriction is imposed by its certificate of incorporation, by-laws or an agreement signed with the holder of the shares at issue. Pursuant to the certificate of incorporation of News Corp US, the Board may refuse to register a transfer of shares (or alternatively refuse to honour any such transfer, suspend the rights attached to shares or redeem shares at their fair market value) if the Board concludes that such a transfer (or any transfer of an interest in shares) could result in:

•

any violation of, or inconsistency with, any order, law or permit issued by a government body or any binding contract with a government body;

•

the loss of, or failure to secure (or to secure the reinstatement of), any permit held by or required to be held by the company or a subsidiary;

•

the creation, attachment or perfection of any encumbrance or security interest over any property or assets of the company or any subsidiary;

•

the initiation of a proceeding against the company or any subsidiary by any government body;

•

the effectiveness of any order, law or permit issued by a government body or binding contract with a government that, in the judgment of the Board, is adverse to the company or any subsidiary or any portion of the business of the company or any subsidiary; or

•

any circumstance or event giving rise to the right of any government body to require the sale, transfer, assignment or other disposition of any property, assets or rights owned or held directly or indirectly by the company or any subsidiary.

3.14

Takeovers

(a)

Statutory provisions

Australian law places restrictions on a person acquiring interests in the voting shares of News Corporation where, as a result of the acquisition, that person’s or someone else’s voting power in the company increases from 20% or below to more than 20% or from a starting point that is above 20% and below 90%. Generally, such acquisitions cannot be made unless the person does not acquire more than 3% of the voting shares in the company in any six month period, the acquisition is made with shareholder approval or the acquisition is made under a takeover bid made in accordance with Australian law. Takeover bids must treat all shareholders alike and must not involve any collateral benefits. Various restrictions about conditional offers exist and there are also substantial restrictions concerning the withdrawal and suspension of offers.

There are no equivalent statutory provisions under Delaware law.

As a Delaware company, the Board of News Corp US will have the ability to implement a broader range of takeover defence mechanisms than currently permitted under Australian takeovers

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legislation and policy. While News Corp US has not adopted such enhanced takeover defence mechanisms, the availability of these mechanisms may be regarded as a potential disadvantage of the Reorganisation to the extent that they enable management to discourage or defeat a takeover bid which stockholders would otherwise like to consider. However, such actions may also advantage stockholders by providing protections against a takeover that is not in the short or long term interests of the company. Defensive mechanisms could include, amongst other things: (i) adoption of a stockholder rights plan (or so-called “poison pill”); and (ii) issuance of stock (including preferred stock having disproportionate or blocking voting rights) to friendly hands. While the News Corp US Board will have substantial discretion to implement such measures, if anti-takeover actions implemented in response to an unsolicited offer are challenged by a News Corp US stockholder, including actions of the kind described here, under well-established Delaware law the Board would have the burden of demonstrating that it had reasonable grounds for believing that a threat to corporate policy and effectiveness existed and that the action taken was reasonable in relation to the threat posed.

Delaware law prohibits specified “business combinations” between a corporation and an “interested stockholder” of the corporation, for three years following the time the interested stockholder became such, unless certain statutory exceptions apply or the corporation has elected not to be governed by the statute. An interested stockholder is a person that beneficially owns 15% or more of a corporation’s voting stock. Note however that News Corp US has elected not to be governed by this Delaware statute, so the restrictions contained therein will not apply to News Corp US.

(b)

Constituent documents

News Corporation’s constitution states that a person shall not offer to acquire any share of News Corporation pursuant to a takeover offer or general offer in respect of one or more of the classes of News Corporation’s shares, unless the offer relates to each class of News Corporation shares or offers are contemporaneously made which between them relate to each class of News Corporation shares and the terms of each such offer are comparable (except for certain minor differences).

News Corp US’s certificate of incorporation provides that an owner of News Corp US Voting Common Stock or News Corp US Non-Voting Common Stock must not sell, exchange or otherwise transfer its shares to a person who has made an offer to acquire 15% or more of the outstanding shares of either class of stock unless the offer relates to both News Corp US Voting Common Stock and News Corp US Non-Voting Common Stock, or other offers are contemporaneously made which between them relate to both classes of stock, and the terms and conditions of such offer or offers as they relate to each class of stock are comparable. In order for the offer or offers to be comparable, (i) the percentage of outstanding shares of each class of stock sought to be acquired must be substantially identical, (ii) the principal terms of the offer or offers relating (amongst other things) to conditions for acceptance, relevant time periods, termination, revocation rights and terms of payment must be substantially identical; and (iii) the amount of cash and the value of each other type of consideration offered for a share of each class must be substantially identical.

There are certain transactions and offers which are expressly excluded from this restriction, including:

•

any purchase or offer to purchase shares on or through a securities exchange or regulated securities association if such purchase or offer to purchase: (i) would not constitute a “tender offer” under Section 14(d) of the US Securities Exchange Act of 1934; and (ii) does

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not result from the solicitation or arrangement for the solicitation of orders to sell News Corp US Voting Common Stock or News Corp US Non-Voting Common Stock in anticipation of or in connection with the transaction,

•

any merger or consolidation in which News Corp US is a constituent corporation, any sale of all or substantially all of the assets of News Corp US, or any similar transaction pursuant, in any such case, to an agreement approved by the Board of News Corp US (or any tender or exchange offer or similar offer conducted pursuant to any such agreement); and

•

any transaction privately negotiated with any stockholder or group of stockholders that would not constitute a “tender offer” under Section 14(d) of the US Securities Exchange Act of 1934, as amended.

A “tender offer” is not defined under the US securities laws, but it is generally interpreted by courts to mean a transaction that involves some or all of the following attributes: active and widespread solicitation of public shareholders for shares of an issuer; a solicitation made for a substantial percentage of an issuer’s stock; an offer to purchase made at a premium over the prevailing market price; terms of the offer which are firm rather than negotiated; an offer that is contingent on the tender of a fixed number of shares and possibly specifying a maximum number of shares; an offer that is only open for a limited time period; an offeree that is subject to pressure to sell stock; and public announcements of a purchasing program that precedes or is coincident with a rapid accumulation of shares.

The provision in the News Corp US certificate of incorporation also differs from the provision in the News Corporation constitution in that the latter provision is triggered where a “takeover offer” is required under Australian law. This means that, under the News Corporation provision, an acquisition of less than 15% of the voting shares may require a “comparable offer”. This is because a takeover offer may be required under Australian law if the acquirer becomes entitled to more than 20% of the voting shares or if, having already been entitled to more than 20%, the acquirer increases its percentage entitlement in any way.

(c)

Removal of directors

The fact that News Corp US has a staggered board which can only be removed for cause may act to discourage a takeover bid which shareholders would otherwise like to consider. In those circumstances, even if the bidder has obtained voting control, the bidder has no right to convene a special general meeting to remove the incumbent directors, and the bidder will not be able to remove an incumbent director or directors prior to the expiry of their three year terms without establishing cause for removal on the part of that director or directors.

3.15

Protection of minority shareholders

(a)

Oppression

Under the Corporations Act, any shareholder of News Corporation can bring an action in cases of conduct which is either contrary to the interests of shareholders as a whole, or oppressive to, unfairly prejudicial to, or unfairly discriminatory against, any shareholders in their capacity as a shareholder, or themselves in a capacity other than as a shareholder. Former shareholders can also bring an action if it relates to the circumstances in which they ceased to be a shareholder.

There are no equivalent statutory provisions under Delaware law, but judicial remedies may be available to stockholders of News Corp US in comparable circumstances.

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(b)

Derivative actions

Under Australian law, a statutory derivative action may be instituted by a shareholder, former shareholder or person entitled to be registered as a shareholder, of News Corporation. In all cases, leave of the court is required. Such leave will be granted if: (i) it is probable that News Corporation will not itself bring the proceedings or properly take responsibility for them, (ii) the applicant is acting in good faith, (iii) it is in the bests interests of the company; and (iv) there is a serious question to be tried.

Under Delaware law, a stockholder of News Corp US may bring a derivative action on behalf of the company where those in control of the company have failed to assert a claim belonging to the company. A stockholder must meet certain eligibility and standing requirements, including a requirement that the plaintiff have been a stockholder of the company at the time of the act of which the plaintiff complains and a requirement that the plaintiff maintain his or her status as a stockholder throughout the course of the litigation. A derivative plaintiff must have made a demand on the directors of News Corp US to assert the corporate claim, unless such a demand would have been futile.

(c)

Appraisal rights

Australian law does not provide for appraisal rights.

Under Delaware law, stockholders of News Corp US who have not voted in favour of, or consented in writing to, certain mergers or consolidations will be entitled to an appraisal by the Court of Chancery of the fair value of the stockholder’s shares as provided for in the statute in connection with specified mergers and consolidations, and to receive payment of that fair value in cash (in lieu of any consideration provided for in the merger or consolidation) provided that the stockholder complies with certain procedural requirements.

However, appraisal rights are not available to holders of shares which are:

•

listed on a national securities exchange;

•

designated as a national market system security on an interdealer quotation system operated by the National Association of Securities Dealers, Inc; or

•

held of record by more than 2,000 stockholders,

unless such holders are required by the terms of the merger agreement to accept in the merger consideration other than any combination of (i) shares of stock (or depositary receipts in respect thereof) of the surviving corporation in the merger; (ii) shares of stock (or depositary receipts in respect thereof) of another corporation that, at the effective date of the merger will be either listed on a national securities exchange, designated as a national market system security on an interdealer quotation system operated by the National Association of Securities Dealers, Inc or held of record by more than 2,000 stockholders; (iii) cash in lieu of fractional shares of the stock or depositary receipts received; or (iv) any combination of the consideration described in (i), (ii) and (iii).

In addition, appraisal rights are generally not available to the holders of shares of the surviving corporation in the merger, if the merger does not require the approval of the stockholders of that corporation.

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3.16

Right to inspect corporation books and records

Under Australian law, a shareholder of News Corporation must obtain a court order to obtain access to the company’s books and records. Under Delaware law, any stockholder may inspect News Corp US’s stock ledger, a list of its stockholders and other books and records of the company upon making a written demand under oath stating a purpose reasonably related to the person’s interest as a stockholder.

3.17

Corporate governance, board composition etc

The composition of News Corporation’s Board and its various committees of Directors, the charters of the committees, as well as the company’s corporate policies as a whole, comply with the combined requirements of the US Sarbanes-Oxley Act and related SEC rules, NYSE listing rules and ASX listing rules, in relation to corporate governance. News Corp US will be subject to the same requirements and will adopt the same structures and policies upon or immediately before implementation of the Reorganisation. Those structures and policies are described in the corporate governance section of the News Corporation website at www.newscorp.com. They are also described, and the extent to which they depart from the ASX’s “Corporate Governance Council Principles of Good Corporation Governance and Best Practice Recommendations” is disclosed, in the annual report sent to Shareholders in the same package as this Information Memorandum.

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Attachment B – Summary of rights attaching to CDIs

1.	Introduction

CDIs are units of beneficial ownership in foreign securities, legal title to the securities being held by an Australian depositary entity, CHESS Depository Nominees Pty Limited (CDN), a subsidiary of the ASX.

Each News Corp US CDI holder will receive a holding statement which sets out the number of News Corp US CDIs held by it and the reference number of the holding. These holding statements will be provided to holders when a holding is first established and if there is a change in their holding of News Corp US CDIs.

A summary of the rights and entitlements of News Corp US CDI holders is shown below. Further information about CDIs is available from the ASX or any stockbroker.

2.	Summary of rights and entitlements

(a)	Number of CDIs issued in relation to News Corp US Voting Common Stock and Non-Voting Common Stock

Each Australian Share Scheme Participant that is a holder of Ordinary Shares will receive one Voting CDI for every two News Corporation Ordinary Shares which they hold at the Record Date. Each Voting CDI will represent an interest in one underlying share of News Corp US Voting Common Stock.

Each Australian Share Scheme Participant that is a holder of Preferred Shares will receive one Non-Voting CDI for every two News Corporation Preferred Shares which they hold at the Record Date. Each Non-Voting CDI will represent an interest in one underlying share of News Corp US Non-Voting Common Stock.

(b)

Voting

If holders of Ordinary and Non-Voting CDIs wish to attend, address and vote at News Corp US general meetings in the United States, they will be able to do so. In order to vote, the Ordinary and Non-Voting CDI holders have the following options:

•	instructing CDN, as legal owner, to vote the News Corp US Voting Common Stock or News Corp US Non-Voting Common Stock underlying their Ordinary or Non-Voting CDIs in a particular manner – the instruction form must be completed and returned to the News Corp US share registry prior to the meeting;

•	informing News Corp US that they wish to nominate themselves or another person to be appointed as CDN’s proxy for the purpose of attending and voting at a general meeting; or

•

converting their Ordinary or Non-Voting CDIs into a holding of shares of News Corp US Voting Common Stock or News Corp US Non-Voting Common Stock (whichever is applicable) and voting these at the meeting (however, if thereafter they wished to sell their investment on the ASX, it would be necessary first to convert those shares of News Corp US Voting Common Stock or News Corp US Non-Voting Common Stock back to Ordinary or Non-Voting CDIs) – this must be undertaken prior to the record date for the meeting. Section (c) below provides further detail in respect of the conversion process.

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Proxy forms and details of these alternatives will be included in each notice of meeting sent to CDI holders by News Corp US.

(c)	Converting from a CDI holding to a direct holding of News Corp US

Holders of News Corp US CDIs may at any time convert them to News Corp US shares by contacting News Corp US’s Australian share registry either:

•	directly in the case of News Corp US CDIs on the issuer sponsored sub-register operated by News Corp US. Holders will be provided by News Corp US’s Australian share registry with the applicable request form for completion and return; or

•	through their controlling participant (generally a stock broker) in the case of News Corp US CDIs which are sponsored on the CHESS subregister. In this case, the sponsoring participant will arrange for completion of the applicable request form.

In both cases, once News Corp US’s Australian share registry has received the applicable request form, advice will be given to News Corp US’s transfer agent for the shares to be registered in accordance with the instructions in the request form. It is expected that this process will generally take approximately two to three business days to complete, following the initial conversion request being made, although the time for conversion may take longer.

Holding News Corp US shares in certificated form will, however, prevent a person from selling their shares on the ASX, as only News Corp US CDIs will be traded on the ASX.

(d)	Dividends and other shareholder entitlements

The ASTC Settlement Rules have force by virtue of the Corporations Act and grant News Corp US CDI holders the right to receive all dividends and other entitlements which attach to the underlying shares of News Corp US Voting Common Stock or News Corp US Non-Voting Common Stock.

The ASTC Settlement Rules state that CDI holders are to receive all direct economic benefits and other entitlements in relation to the underlying shares (such as the right to receive the same dividends, rights issues and bonus issues) as if they held the underlying News Corp US Voting Common Stock or News Corp US Non-Voting Common Stock. If a cash dividend or any other cash distribution is declared, News Corp US will distribute this dividend or distribution to News Corp US CDI holders in accordance with each News Corp US CDI holder’s entitlement.

(e)

Takeovers

If a takeover bid is made in respect of any of the News Corp US shares of which CDN is the registered holder, CDN is prohibited from accepting the offer made under the takeover bid except to the extent that acceptance is authorised by the relevant CDI holders in accordance with the ASTC Settlement Rules.

(f)	Other rights

As CDI holders will not appear on the News Corp US share register as legal holders of News Corp US shares, any other right conferred on holders of News Corp US shares may be exercised by the CDI holders by means of them instructing CDN.

As to the right to vote at News Corp US general meetings, see Section (b) above.

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(g)

Fees

A News Corp US CDI holder will not incur any additional fees or charges as a result of holding CDIs rather than shares of News Corp US Common Stock or News Corp US Non-Voting Common Stock, whether as a result of the implementation of the Reorganisation or in the future.

(h)	Local and international trading in CDIs

News Corp US CDI holders who wish to trade their News Corp US shares will be transferring beneficial interest in News Corp US shares rather than legal title. The transfer will be settled electronically by delivery of the relevant News Corp US CDI holding through CHESS, thereby avoiding the need to effect settlement by the physical delivery of certificates.

The mechanics for trading in shares which are represented by CDIs are no different to trading in other CHESS approved securities. More information on trading CDIs electronically on the ASX is available from the ASX and stockbrokers.

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Attachment C – Summary of News Corp US Option Plan and of News Corp

US Former Employee Plan

A.	News Corp US Option Plan

1.	Introduction

News Corp US has adopted the News Corp US Option Plan, conditional upon implementation of the Schemes. The News Corp US Option Plan provides for (a) an initial grant of options under the plan in accordance with the Option Scheme (Replacement Options); and (b) for future grants of options under the plan.

2.	Replacement Options

Replacement Options will be issued on the same terms as all other options issued under the News Corp US Option Plan (as set out in clauses 3 to 12 below), except that those options will:

(a)

be issued under the Option Scheme on a one for two basis, meaning that an Optionholder will receive one Replacement Option for every two Options currently held, rounded up to the nearest whole number;

(b)

have an Exercise Price equal to twice the Exercise Price of the Options they replace;

(c)

have an exercise period equal to the unexpired exercise period of the Options they replace; and

(d)

be vested to the same extent and have the same terms including the vesting schedules as the options they replace.

3.	Offer and acceptance of options

The administrator of the News Corp US Option Plan (which will be the Board of News Corp US or one of its committees) has the authority, in its discretion, to: (i) designate grantees of options; (ii) determine whether and to what extent options are granted; and (iii) determine the number of shares to be covered by each option granted.

4.	Issue limitation

The aggregate number of shares of Non-Voting Common Stock reserved from time to time for the grant of options under the News Corp US Option Plan shall equal 6% of the total issued and outstanding share capital immediately following implementation of the Schemes plus any shares subject to options under the News Corp US Former Employee Plan described in B below which have expired or are forfeited.

5.	Price of options

The Exercise Price for each share of Non-Voting Common Stock subject to an option granted under the News Corp US Option Plan shall be equal to the weighted average market price per share of Non-Voting Common Stock sold on the NYSE during the five trading days immediately prior to the date the option is granted, and will be in US$.

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6.	Vesting of options

Each option granted under the News Corp US Option Plan shall, on its grant, be an unvested option (ie. not capable of exercise, as opposed to a vested option). On each anniversary of the grant of any options, one quarter of the options subject of that grant shall become vested options until all those options have vested.

7.	Term of options

The term of options granted under News Corp US Option Plan will be fixed by the administrator of the News Corp US Option Plan, but in no event will it be more than 10 years from the date of grant of those options. The term of options granted under the News Corp US Option Plan may be extended by the administrator, but not so that the term extends beyond 10 years from the date of grant.

8.	Duration of option plan

The News Corp US Option Plan shall terminate automatically 10 years after its adoption by the Board of News Corp US, and may be terminated or suspended at any earlier time by the administrator of the News Corp US Option Plan in respect of shares over which options have not been granted.

9.	Exercise of options

A vested News Corp US Option may be exercised by the delivery of a written notice to News Corp US. The notice shall specify the number of shares over which the News Corp US Options are being exercised. The minimum number of shares over which News Corp US Options may be exercised is 100, or such lesser number as set out in the individual option agreement entered into with News Corporation in connection with the grant of the original Option. The Exercise Price shall be paid in full by the Optionholder at the time of exercise. Such payment shall include, if notice has been given by News Corp US to the Optionholder, any amount of tax necessary to satisfy applicable federal, state, local or international tax requirements.

Each Optionholder authorises News Corp US or any of its related bodies corporate to withhold from any compensation payable to the Optionholder any taxes required to be withheld by News Corp US or those related bodies corporate under foreign or US federal, state or local law as a result of the Optionholder’s exercise of the option.

10.

Listing of shares

If News Corp US so determines, no share may be issued upon exercise of a News Corp US Option unless consent or approval for listing, registration or qualification of those shares upon any securities exchange or under any governmental authority shall have been effected or obtained free of any conditions not acceptable to News Corp US.

11.

Alteration of option plan

The administrator of the News Corp US Option Plan may amend the News Corp US Option Plan in respect of any shares over which News Corp US Options have not been granted. Such an amendment shall be contingent on approval of the stockholders of News Corp US to the extent stated by the Board of News Corp US, required by any applicable law or required by any listing rules applicable to News Corp US. No amendment, suspension or termination of the News Corp

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US Option Plan shall impair the rights or obligations under any News Corp US Options previously granted under the News Corp US Option Plan without the consent of the relevant Optionholder.

12.

Reorganisation or reconstruction of capital

The number of shares which may be acquired upon exercise of News Corp US Options, or the exercise price of such options, may, at the discretion of the administrator of the News Corp US Option Plan (but subject to any applicable laws, including any stock exchange rules), be determined to be such number or price as appropriate considering changes in the capital of News Corp US. Such changes include stock splits, stock dividends, split-ups, reverse splits, recapitalisations, mergers, consolidations, combinations or exchanges of shares, spin-offs, reorganisations, liquidations and the like.

B.	News Corp US Former Employee Plan

The terms of options issued under the News Corp US Former Employee Plan are the same as those described above for Replacement Options issued under the News Corp US Option Plan.

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Attachment D – UBS AG, Australia Branch Opinion and Financial Services Guide

See over page

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This Financial Services Guide is required by Australian law to be given to Australian retail investors, and may not be relevant to you. It contains generic information, which does not specifically relate to the UBS opinion or the Proposed Transaction, regarding the services which UBS AG, Australia Branch, is authorised to provide under its Australian Financial Services Licence.

Financial Services Guide

What is the purpose and content of this guide

This Financial Services Guide (“FSG”) dated 11 March 2004 is an important document. You should read it carefully and make sure you understand it. This FSG provides generic information about UBS AG, Australia Branch (ABN 47 088 129 613) (“UBS AG”, “us”, “we”, “our”) and the services we offer.

This guide also provides specific information about how you pay for our services. UBS AG is providing this FSG to give you key information about the types of financial services we offer. The FSG is intended to assist you in deciding whether to use any of the services offered.

The FSG contains among other things:

•	a summary of the financial services which we are authorised to provide and the kinds of financial products to which those services relate;

•	information about the capacity in which we act when providing services to you;

•	information about your rights as an investor;

•	details on how you can instruct us in relation to your investment;

•	information about the Product Disclosure Statement(s) and any Statement of Advice which you may receive from us;

•	information about remuneration that may be paid to us and other relevant persons in relation to the services provided;

•	information about how complaints against us are dealt with; and

•	information which you can request when you are provided with further market-related advice.

In addition to this FSG, you may, from time to time, receive from UBS AG, a Product Disclosure Statement (“PDS”), a Statement of Advice (“SOA”), or a Record of Advice.

It is not UBS AG’s policy to provide personal financial product advice. If however, you do receive personal financial product advice from UBS AG, you will be provided with an SOA. The SOA will include a statement of UBS AG’s advice, the basis for that advice, as well as information about remuneration and fees that UBS AG may receive in connection with giving you the advice and interests, relationships or associations that may influence the advice.

If UBS AG makes a recommendation to acquire a particular financial product (other than securities) or offer to issue, or arrange the issue of a financial product to you, it will also provide you with a PDS. There are a number of exceptions to when UBS AG must provide a PDS including: where you already have a current PDS; you hold a financial product of the same kind and you have access to current information about that kind of financial product; or the offer is made under a distribution reinvestment plan or switching facility.

The PDS contains details about the particular product and any significant risks associated with holding the product, any amounts that you must pay, and in the case of products which will or may generate a return, information about any commission or other similar payments that will or may impact on the amount of the returns payable to you.

Important information is provided below in answer to commonly asked questions.

Who will be responsible for the financial services given to you?

The financial services listed below will be provided by UBS AG. UBS AG is an Australian Financial Services Licensee under the Corporations Act (Licence No. 231087). It is a foreign Authorised Deposit-Taking Institution under the Banking Act 1959 (Cth), a Full Participant of the Sydney Futures Exchange, a Clearing Participant of SFE Clearing, and a Full Member of Austraclear.

What financial services are we authorised to provide?

UBS AG is authorised to provide the following financial services:

1.	Advising in the following classes of financial products:

•

securities;

•

debentures, stocks or bonds issued or proposed to be issued by a government;

•

derivatives;

•

foreign exchange contracts;

•

warrants which may be managed investment products;

•

managed investment schemes (excluding investor directed portfolio services); and

•

deposit and payment products;

2.	Dealing in the following classes of financial products:

•

securities;

•

debentures, stocks or bonds issued or proposed to be issued by a government;

•

derivatives;

•

foreign exchange contracts;

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•

warrants which may be managed investment products;

•

managed investment schemes (excluding investor directed portfolio services); and

•

deposit and payment products;

3.	Underwriting interests in managed investment schemes and issues of securities; and

4.	Making markets for all financial products.

How will you pay for the services and how are any commissions, fees or other benefits calculated?

You may pay UBS AG a fee depending on the services and / or products you choose and the amount you invest.

In particular, UBS AG may receive fees and other benefits from the financial products that it issues to you. To the extent that a PDS is required for a transaction involving a particular financial product, the PDS for the financial product will disclose details of commissions, fees or other benefits received by UBS AG (and any of its related companies) in respect of the transaction involving that financial product.

Related entities of UBS AG may provide financial services in connection with financial products issued by UBS AG. For example, in respect of financial products issued by UBS AG, UBS Securities Australia Limited (ABN 62 008 586 481) may act as broker and market maker. UBS Nominees Pty Limited (ABN 32 001 450 522) may also provide custodial services for financial products provided by UBS AG.

Will anyone be paid for referring me to you?

UBS AG has arrangements with a number of financial intermediaries in relation to the provision of financial products by it to clients of those financial intermediaries. In those circumstances, a referral fee may be paid to the financial intermediary.

This referral fee is usually based on the value of the transaction or financial product that has been provided to you, and the total fee paid will range from 0% to 8% of the value of that transaction or product. The referral fee may be paid in the form of an upfront selling fee and/or periodic trail fees.

In what capacity do we act?

When providing the above financial services to you we act in a principal capacity and not as a representative of any other person.

What kind of advice will you receive?

It is UBS AG’s policy not to provide personal financial product advice. To the extent any advice is given, it is general financial product advice and does not take account of your personal circumstances, needs or objectives. Thus any resulting investment may not be appropriate to your needs and objectives and you should carefully assess how appropriate the recommendations are in light of your particular investment objectives, financial situation and needs.

General financial product advice may also be given through research reports and in product disclosure statements. This advice is not personal advice as it does not consider your personal circumstances, needs or objectives. You should consider your personal objectives, financial situation and needs when reviewing this information before making any decision relating to a financial product, and seek professional independent advice if you think that is appropriate.

What are your rights as an investor?

Where you do receive personal financial product advice your adviser is obliged to have a reasonable basis for the advice given. This means that your adviser must give consideration to your investment objectives, financial situation and particular needs and conduct a reasonable investigation of the subject matter of the advice. If you do not wish to provide personal information, your adviser will be limited in his or her ability to make recommendations specific to your requirements.

You have the right to be advised about any remuneration (including commissions) or other benefit that UBS AG, your adviser and other relevant persons are to receive that may reasonably be expected to be capable of influencing the advice provided to you.

How can you instruct us to buy or sell your investment or change your service arrangements with us?

You must specify to your adviser or to UBS AG exactly what you want us to do. You may give us instructions by telephone, facsimile, in writing or any other means that we agree with you.

What information do we maintain in your file?

We maintain a record of items of personal information that you have provided to us, for example, as recorded in your account opening forms, financial product application forms or transaction documents.

All personal information (as defined in the Privacy Act 1988 (Cth)) collected from you will be used and stored by us in accordance with the Privacy Policy for UBS AG. A copy of the Privacy Policy can be made available to you on request.

What can you do if you have a complaint?

If you have a complaint about the service provided to you by UBS AG or any of their representatives, you should take the following steps.

1.	Contact the UBS AG Representative with whom you have been dealing and tell that person about your complaint.

2.	If your complaint is not satisfactorily resolved within 3 business days, please contact our Regional Manager in your State or put your complaint in writing and send it to us at the following address:

The Complaints Officer

c/- Legal & Compliance Department

UBS

Level 25, Governor Phillip Tower

1 Farrer Place

Sydney NSW 2000

We will try to resolve your complaint quickly and fairly.

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3.	If you still do not get a satisfactory outcome, you have the right to complain to:

Financial Industry Complaints Service Limited

PO Box 579, Collins Street West,

Melbourne VIC 8007

Telephone: 1300 78 08 08

Fax: 03 9621 2291

Email: fics@fics.asn.au

The Australian Securities and Investment Commission (ASIC) also has a free call Infoline on 1300 300 630 which you may use to make a complaint and obtain information about your rights.

If you would like clarification of any of the matters discussed in this Guide, or require further information including a copy of our internal complaint policy, please contact your adviser.

Contact details

If you have any queries, you can contact us on

(612) 9324 2000.

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LOGO

UBS AG

Australia Branch

ABN 47 088 129 613

GPO Box 1328L

Melbourne, VIC 3001

Tel. +61-3-9242 6100

www.ubs.com

Special Committee of the Board of Directors

The News Corporation Limited

1211 Avenue of the Americas

New York, NY 10036

August 9, 2004

Dear Members of the Special Committee

We understand that The News Corporation Limited, a corporation incorporated under the laws of the State of South Australia (the “Company”), is considering the following transactions (collectively, the “Cruden/QPL Transaction”) whereby: (i) pursuant to the terms of the Kayarem Share Exchange Agreement among the trustee of the Second Trust (as defined in the Kayarem Share Exchange Agreement) (the “Second Trust”), the trustees of the AE Harris Trust (as defined in the Kayarem Share Exchange Agreement) (the “AE Harris Trust”) and News Corporation, Inc., a newly formed Delaware corporation (“New News”) (the “Kayarem Share Exchange Agreement”), New News will acquire all of the issued and outstanding shares of Kayarem Pty. Limited, a corporation incorporated under the laws of the Australian Capital Territory which is wholly owned by the AE Harris Trust and the Second Trust (“Kayarem”), and (ii) pursuant to the terms of the CI Share Exchange Agreement among the trustees of the Settlement Trusts and the Remaining Trust (as each such term is defined in such agreement), Keith Rupert Murdoch, Carlholt Pty Ltd and New News (the “CI Share Exchange Agreement”, and collectively with the Kayarem Share Exchange Agreement, the “Exchange Agreements”), New News will acquire from the Settlement Trusts, the Remaining Trust, the Second Trust and the AE Harris Trust (collectively, the “Murdoch Trusts”) all of the shares in Kayarem, Cruden Investments Pty. Limited and each of their subsidiaries (collectively, the “Cruden Group”). In consideration for these acquisitions, pursuant to the terms of the Exchange Agreements New News will issue to the Murdoch Trusts in the Cruden/QPL Transaction, in the aggregate, 61,927,293 shares of Class A common stock, par value US$0.01 per share (“Class A Shares”), of New News and 307,782,686 shares of Class B common stock, par value US$0.01 per share (“Class B Shares”), of New News (such Class A Shares and Class B Shares collectively referred to herein as the “Consideration”).

Immediately before the consummation of the Cruden/QPL Transaction, the assets and liabilities of the Cruden Group will consist of (A) 307.8 million ordinary shares (the “Ordinary Shares”) of the Company, (B) 69.1 million preferred limited voting ordinary shares (the “Preference Shares”) of the Company, (C) 58.34% of the issued and outstanding ordinary shares of Queensland Press Pty. Ltd., a corporation incorporated under the laws of the State of Queensland (“QPL”), which owns, among other assets, 319.2 million Ordinary Shares and 148.0 million Preference Shares, (D)A$326.5 million of outstanding net debt

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UBS AG

Australia Branch

ABN 47 088 129 613

GPO Box 1328L

Melbourne, VIC 3001

Tel. +61-3-9242 6100

www.ubs.com

of the Cruden Group to be assumed by New News (the “External Debt”) and (E) other miscellaneous assets and liabilities (collectively, the “Other Assets and Liabilities”).

Subject to shareholder and other regulatory approvals, immediately after consummation of the Cruden/QPL Transaction, the Company will implement schemes of arrangement (the “Schemes of Arrangement”) and a share cancellation pursuant to the terms of certain agreements (collectively the “Implementation Agreements” and, collectively with the Exchange Agreements, the “Transaction Agreements”) as a result of which, among other things, the Company will become a wholly owned subsidiary of New News and, subject to certain exceptions, every two issued and outstanding Preference Shares and every two issued and outstanding Ordinary Shares will be effectively exchanged for one Class A Share and one Class B Share, respectively, and options to acquire Preference Shares under certain Company option plans will be replaced by substantially similar options to acquire a number of Class A Shares equal to half the number of Preference Shares which can be purchased upon exercise of the existing option. The transactions contemplated by the Implementation Agreements are referred to herein collectively as the “Reincorporation Transactions”. The Cruden/QPL Transaction and Reincorporation Transactions are referred to herein collectively as the “Transactions”.

The terms and conditions of the Transactions are more fully set forth in the Transaction Agreements.

You have requested our opinion as to the fairness from a financial point of view to the Company of the Consideration to be paid to the Murdoch Trusts in the Cruden/QPL Transaction.

UBS AG, Australia Branch and its affiliates (collectively, “UBS”) have acted as financial advisor to the Special Committee of the Board of Directors of the Company formed in connection with the Transactions (the “Special Committee”). UBS will receive a fee for these services and for the provision of its advice and this opinion to the Special Committee. In the past, UBS and its predecessors have provided investment banking services to the Company and received customary compensation for the rendering of such services. In the ordinary course of business, UBS and its successors may trade securities of the Company for their own accounts and the accounts of their customers, accordingly, may at any time hold a long or short position in such securities.

Our opinion does not address the Company’s underlying business decision to effect the Transactions or constitute a recommendation to any shareholder of the Company as to how such shareholder should vote with respect to the Schemes of Arrangement. This opinion is not an independent expert’s report as contemplated by ASIC Policy Statement 75. It has been prepared solely for the purpose of consideration by the Special Committee and the Board of Directors of the Company and without considering the objectives, financial situation or needs of any shareholder or other person.

With your consent, we are not expressing any opinion as to the material terms of the Transaction Agreements, the structure of the Transactions or the fairness or any other aspect of the Reincorporation Transactions, including any effect or impact they may have on the Cruden/QPL Transaction. In rendering this opinion, with your consent, we have not taken into account the Reincorporation Transactions and we have assumed that one Non-Voting Share is equivalent in all material respects to two Preference Shares, one Voting Share is equivalent in all material respects to two Ordinary Shares and New News is equivalent

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UBS AG

Australia Branch

ABN 47 088 129 613

GPO Box 1328L

Melbourne, VIC 3001

Tel. +61-3-9242 6100

www.ubs.com

in all material respects to the Company. In rendering this opinion, with your consent, we have assumed that the final executed forms of the Exchange Agreements do not differ in any material respect from the drafts that we have examined and that all of the parties thereto will comply with all of the material terms of the Exchange Agreements. Our opinion is rendered after the sale by the Cruden Group of certain farm assets and art work pursuant to third party appraisals and the transfer of certain debt to members of the family of K. Rupert Murdoch and does not take into account any aspect of such sale other than the cash proceeds thereof. We express no opinion as to what the value of the Class A Shares or the Class B Shares will be when issued pursuant to the Transactions or the prices at which they or the Preference Shares or Ordinary Shares will trade in the future.

In arriving at our opinion, we have, among other things: (i) reviewed certain publicly available business and historical financial information relating to the Company, (ii) reviewed certain financial forecasts prepared by management of the Company that were provided to us by the Company and that are not publicly available, (iii) reviewed certain internal financial information and other data relating to the business and financial prospects of QPL, including financial forecasts prepared by the management of QPL, reviewed by management of the Company, and not publicly available, (iv) conducted discussions with members of the senior management of the Company and QPL concerning the businesses and financial prospects of the Company and QPL, (v) reviewed publicly available financial and stock market data with respect to certain other companies in lines of business we believe to be generally comparable to those of QPL, (vi) compared the financial terms of the Cruden/QPL Transaction with the publicly available financial terms of certain other transactions which we believe to be generally relevant, (vii) considered certain pro forma effects of the Cruden/QPL Transaction on the Company’s financial statements, (viii) reviewed drafts of the Exchange Agreements, (ix) reviewed estimates of certain assets and liabilities of the Cruden Group prepared by representatives of the Cruden Group, as well as financial statements of certain members of the Cruden Group, (x) reviewed third party appraisals of certain assets of QPL and valuations of certain assets and liabilities of QPL provided by management of the Company (collectively, the “Appraisals”), and (xi) conducted such other financial studies, analyses, and investigations, and considered such other information as we deemed necessary or appropriate.

In connection with our review, with your consent, we have not assumed any responsibility for independent verification for any of the information reviewed by us for the purpose of this opinion and have, with your consent, relied on such information and the Appraisals as being complete and accurate in all material respects. In addition, with your consent, we have not made any independent evaluation or appraisal of any of the assets or liabilities (contingent or otherwise) of the Company or QPL and we have not been furnished with any such evaluation or appraisal other than the Appraisals. With respect to the financial forecasts of the Company, QPL, and the Cruden Group and the pro forma effects on the Company referred to above, we have assumed, with your consent, that they have been reasonably prepared on a basis reflecting the best currently available estimates and judgments of the managements of the Company and QPL and the representatives of the Cruden Group as to the future performance of their respective companies. In addition, we have assumed with your approval that the future financial results referred to above will be achieved substantially at the times and in the amounts projected by management. We have also assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the Transactions will be obtained without any material adverse effect on the Company and/or QPL and the Cruden/QPL Transaction. Our opinion is necessarily based on economic, monetary,

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LOGO

UBS AG

Australia Branch

ABN 47 088 129 613

GPO Box 1328L

Melbourne, VIC 3001

Tel. +61-3-9242 6100

www.ubs.com

market and other conditions as in effect on, and the information made available to us as of, the date hereof.

Our opinion is being provided solely to the Special Committee and to the Board of Directors of the Company in connection with their consideration of the Cruden/QPL Transaction and may not be used for any other purpose and may not be used or relied upon by any other person.

Based upon and subject to the foregoing, it is our opinion that, as of the date hereof, the Consideration to be paid to the Murdoch Trusts in the Cruden/QPL Transaction is fair, from a financial point of view, to the Company.

Very truly yours,

LOGO

UBS AG, AUSTRALIA BRANCH

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14 September 2004

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Attachment E - Independent Expert’s Report

The Directors

The News Corporation Limited

2 Holt Street

Surry Hills NSW 2010

AUSTRALIA

Dear Sirs

Re-incorporation of The News Corporation Limited in the

United States and acquisition of Queensland Press Pty Limited

1	Introduction

On 6 April 2004, The News Corporation Limited (“News Corporation”) announced plans to move its domicile from Australia to the United States by incorporating a new group parent company in the United States (“the Proposal”).

Shareholders will exchange their shares in News Corporation, including those shares held through American Depositary Shares (“ADSs”), for shares in a new Delaware incorporated company (“News Corp US”). The exchange will be on the basis of one new share for every two shares currently held (or two new shares for every one ADS currently held). Ordinary shareholders in News Corporation will receive shares of voting common stock (“voting shares”) in News Corp US while the holders of preferred limited voting ordinary (“preferred”) shares in News Corporation will receive shares of non voting common stock (“non voting shares”) in News Corp US. Holders of executive options in News Corporation will receive substitute options in News Corp US (also on a one for two basis). The dividend premium of 20% and the priority as to dividends that currently applies to the preferred shares will be phased out for the non voting shares. Non voting shares will rank equally with voting shares and, after the year ending 30 June 2007, will receive the same dividend as voting shares.

News Corp US plans to have its primary listing on the New York Stock Exchange (“NYSE”) but will also be listed on the Australian Stock Exchange (“ASX”) and the London Stock Exchange (“LSE”).

There will be no material change to the operations, management or strategy of News Corporation. The directors of News Corporation following the 2004 annual general meeting will all become directors of News Corp US.

As part of the Proposal, News Corp US will acquire Kayarem Pty Limited (“Kayarem”) which is 100% owned by interests associated with the family of Rupert Murdoch and certain other entities (“the Murdoch Interests”). Kayarem owns 100% of Cruden Holdings Pty Limited which, in turn, owns 96.4% of Cruden Investments Pty Limited (“Cruden Investments”). The Murdoch Interests also own the remaining 3.6% in Cruden Investments. These entities and certain other companies are collectively referred to as the “Cruden Group”. The Cruden Group directly owns shares in News Corporation and a 58.3% controlling interest in Queensland Press Pty Limited and its subsidiaries (“Queensland Press”). Queensland Press publishes The Courier-Mail, the leading daily newspaper in south east Queensland, and several other titles. News Corporation owns the remaining 41.7% of Queensland Press which will therefore become a wholly owned subsidiary of News Corp US if the Proposal is implemented.

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The consideration for the Murdoch Interests’ shareholdings in Kayarem and the outstanding 3.6% in Cruden Investments has several elements:

in respect of the ordinary and preferred shares in News Corporation owned by the Cruden Group, the Murdoch Interests will receive voting shares and non voting shares in News Corp US on a one for two basis;

other liabilities in the Cruden Group (essentially net borrowings) have been estimated to be A$359.5 million at settlement and will be recognised by reducing the number of non voting shares issued above at an agreed price equivalent to A$11.35 per News Corporation share. There will be a final adjustment based on actual net borrowings at settlement payable in cash;

Queensland Press owns 319.14 million ordinary and 148.01 million preferred shares in News Corporation, representing 15.20% and 3.82% of the issued capital in each of these classes of shares. In respect of these assets, the Murdoch Interests will receive voting shares and non voting shares in News Corp US equal to their pro rata share (ie. 58.3%) of Queensland Press’s interests in News Corporation (on a one for two basis); and

As a result of implementation of the Proposal, the voting entitlement of the Murdoch Interests will decrease from 29.86% of News Corporation to 29.47% of News Corp US.

The Proposal is to be implemented by way of:

a scheme of arrangement under Section 411 of the Corporations Act (“the Share Scheme”) for shareholders. The Share Scheme also involves a capital reduction; and

a creditors’ scheme of arrangement under Section 411 of the Corporations Act (“the Option Scheme”) for all holders of options issued under executive option plans.

The schemes require, inter alia, the approval of each class of shareholder, each class of optionholder and the Federal Court. The Murdoch Interests will vote on the Proposal as a separate class.

News Corporation has engaged Grant Samuel & Associates Pty Limited (“Grant Samuel”) to prepare an independent expert’s report on the Proposal stating whether, in Grant Samuel’s opinion, the Proposal is:

in the best interests of shareholders as a whole;

in the best interests of ordinary shareholders;

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in the best interests of preferred shareholders; and

in the best interests of optionholders.

This report has been prepared solely for the purposes of assessing the impact of the Proposal on shareholders and optionholders and should not be used or relied on for any other purpose. The report will accompany the Notice of Meeting and Information Memorandum to be sent to News Corporation shareholders and optionholders. This letter contains a summary of Grant Samuel’s opinion and the main conclusions.

2	Summary of Conclusions

In Grant Samuel’s opinion, the Proposal is in the best interests of News Corporation shareholders as a whole as well as each of the ordinary shareholders, preferred shareholders and optionholders. The benefits of the Proposal primarily relate to the market for News Corporation shares and involve judgements rather than propositions that can be empirically verified. The directly measurable benefits are limited but Grant Samuel’s judgement is that shareholders as a whole are likely to be better off if the Proposal is implemented than if it is not despite the possibility of some short term adverse impacts.

The Proposal reflects the reality of News Corporation’s business. Approximately 70% of the group’s revenues and more than 80% of profits are generated in the United States. The operational head office is in New York. In the long run, it makes sense for a company’s shareholder base to be aligned with its primary operational base. This has been occurring progressively over the past 20 years. United States based institutions now hold more shares (of both classes) than Australian institutions and this trend seems likely to continue. The shifting of the place of incorporation is arguably a natural step in this transition.

There should be substantial initial and ongoing demand for News Corp US shares from United States based investors particularly as a result of the anticipated inclusion of News Corp US in key United States indices such as the S&P500. In due course, this source of demand should outweigh any selling by Australian (and some other) investors arising from the progressive removal of News Corp US from Australian indices. Nevertheless, there is a risk of some short term adverse effects as Australian (and other) institutions sell down and this may disadvantage those shareholders that need to sell at this time or choose to do so. However, ultimately, the price of shares in News Corp US will be determined by the fundamentals of its performance. It has been suggested that News Corp US will be more highly valued on fundamentals than News Corporation would have been. News Corporation does appear to be valued at lower multiples than its peers although there may be valid reasons for this. Regardless, it seems that the United States market plays an important role in setting prices for News Corporation shares and it is not unreasonable to believe that some discount inevitably applies because News Corporation is not a fully fledged United States company. The evidence is ambiguous but, on balance, it is Grant Samuel’s view that, in time, there should be some positive effect on value from the change of domicile.

In any event, it is reasonable to expect that, at the least, the discount at which the preferred shares have traded will reduce. This expectation is supported by sharemarket trading since the announcement. The reduction of the discount is significant because the preferred shares have been the major (and a very substantial) source of new equity for News Corporation and now represent approximately 65% of the issued capital. A reduced discount would lower the cost of capital and help the group to continue to grow.

There are related benefits including better access to the United States capital markets and enhanced currency for acquisitions. Historically, News Corporation has had a continuing demand for new

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capital to support its ambitious growth. In the last 20 years, most of this capital has been raised in the United States (primarily through acquisitions) and this is likely to continue to be the case. News Corp US scrip will be more attractive to United States investors than News Corporation scrip and News Corp US will be able to access a much wider range of investors on a more efficient basis.

The effective acquisition of the shareholding in Queensland Press from the Murdoch Interests is strategically sensible and is on terms that Grant Samuel considers fair and reasonable for the acquisition of a controlling interest. The price for the business operations represents relatively high multiples of earnings but these can be justified. Queensland Press is a very attractive business. The Courier-Mail is the only significant metropolitan daily newspaper in south east Queensland, one of Australia’s fastest growing and most prosperous regions. It has a strong track record of earnings growth and there are good prospects for continued growth.

The Proposal has no material effect on control of News Corporation.

As in any major restructuring, there are some costs, disadvantages and risks (in addition to the market demand and indexation issues). The more significant ones are:

the move to a different jurisdiction in terms of corporate law, governance and regulation. Some elements may be less favourable for shareholders than the current Australian regime. In particular, there is an opportunity for control to change hands without an offer being made to all shareholders. On the other hand, shareholders have greater protections in some respects. The United States (and Delaware in particular) is obviously regarded as a satisfactory jurisdiction by most of the world’s leading investors and the change is probably of little concern to United States based shareholders in News Corporation. In the final analysis, this is the cost of being directly present in the world’s largest capital market;

the phasing out of preferential dividend rights of the preferred shares, in particular the right to 120% of the dividend on ordinary shares;

the loss of “pre CGT” status for some shareholders. However, other than the Murdoch Interests, this is expected to affect only 0.4% of shareholders; and

commercial and legal risks associated with the acquisition of the Cruden Group and Queensland Press.

The costs, disadvantages and risks are not inconsequential but do not outweigh the advantages.

The Proposal is not a “must do” transaction. News Corporation could stay as it is. Shareholders could preserve the status quo but in doing so they should recognise that:

a change of domicile is probably inevitable at some point if the shareholder base becomes increasingly dominated by United States investors. Deferring this event will not make the index and transition issues go away; and

such action could hamper News Corporation’s future performance to the extent it inhibits its ability to grow because of a higher cost of capital.

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3	Key Conclusions

News Corporation is, in practical terms, already a United States based company

From its origins in Adelaide, News Corporation has grown into one of the world’s largest and most diversified media and entertainment companies. Today, its most significant operations are in the United States where it controls:

•

Twentieth Century Fox, one of Hollywood’s largest movie and television program production businesses;

•

the Fox television network, one of four major national free to air broadcast television networks in the United States (with owned stations in nine of the top ten markets);

•

extensive cable television programming such as Fox News Channel, FX, Fox Sports and Fox Movies; and

•

34% of The DIRECTV Group, Inc. (“DirecTV”), one of two major satellite television delivery platforms.

News Corporation has other significant businesses in the United Kingdom (newspapers and 35.3% of British Sky Broadcasting Group plc), Italy, Latin America and Asia.

News Corporation’s Australian businesses are primarily a range of metropolitan, regional and community newspapers, 25% of Foxtel and 50% of Fox Sports Australia. These businesses now represent approximately 10% of group earnings before interest and tax.

News Corporation moved its operational headquarters from Australia to New York more than 20 years ago.

United States based institutions now own more of both the ordinary capital and the preferred share capital than Australian institutions:

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There is no material change in the control of News Corporation

The impact of the Proposal on the shareholding structure of News Corporation is summarised below. The voting influence of the Murdoch Interests is, in fact, slightly reduced after the Proposal is implemented as they will only control their proportionate interest of the shares previously held through Queensland Press:


Impact on Shareholder Voting Interests
	Before Proposal			After Proposal
	Number (millions)	% Interest		Number (millions)	% Interest
Ordinary/Voting
Murdoch Interests	626.97	29.86	%	307.78	29.47%
Other shareholders	1,472.95	70.14	%	736.48	70.53%
Total	2,099.92	100.00	%	1,044.26	100.00%
Preferred/Non Voting
Murdoch Interests	217.20	5.61	%	61.93	3.28%
Other shareholders	3,652.48	94.39	%	1,826.24	96.72%
Total	3,869.68	100.00	%	1,888.17	100.00%

Source: News Corporation (based on share capital at 30 June 2004)

The Proposal should be positive for News Corporation’s market rating and liquidity

It has been suggested that the market for News Corporation shares will be enhanced by the Proposal in several respects:

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a higher value for equity generally relative to what it would have been in the absence of the Proposal;

•

a reduced discount for the preferred/non voting shares; and

•

increased liquidity.

In Grant Samuel’s view, there is merit in these arguments. However, the purported benefits are not capable of being directly measured or estimated with any degree of reliability. They are fundamentally subjective judgements. Movements in market prices are complex phenomena, being the results of thousands of individual decisions.

In the short term (up to, say, 12 months), the News Corp US share price could be adversely impacted by transition issues, in particular the consequences of the expected changes to the inclusion of News Corp US shares in various market indices. Standard & Poor’s¹ has announced that it intends to:

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consider News Corp US for inclusion in the S&P500 index following the Proposal becoming effective (after a three week notice period) if News Corp US meets the necessary criteria (which it should). The S&P500 is the key benchmark index for the United States equities markets; and

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if included in the S&P500, remove News Corp US from the S&P/ASX200², the key Australian market index, and all other S&P/ASX indices in four equal stages over a nine month period. The staged removal reflects News Corporation’s size and importance in the context of the Australian market. It is the single largest company in the S&P/ASX indices.

¹	For this purpose, Standard & Poor’s includes the Standard & Poor’s Australian Index Committee.

²	This index essentially includes the top 200 companies listed on the ASX.

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It is expected that News Corp US will be added to the United States sub index of various international indices such as MSCI³ and FTSE⁴ and will be contemporaneously removed from their respective Australian and regional sub indices.

These index changes are expected to lead to substantial buying and selling by institutional investors including:

•

selling by Australian institutions, both passive index funds (which will have to sell) and active funds. Many institutions have their Australian equities performance benchmarked to the S&P/ASX200 and will not want to have substantial holdings of News Corp US shares because of the potential for significant tracking error;

•

selling and buying by offshore funds benchmarked to MSCI or FTSE regional sub indices that include Australia;

•

buying by United States index funds which should occur immediately upon inclusion in the S&P500; and

•

buying by United States active fund managers, general investors and retail investors.

It is impossible to estimate these funds flows or their likely impact on the share price with any precision. A review of estimates by brokers and others reveals a wide range. Any analysis is little more than a “guesstimate”. The consistent themes that do emerge are that:

•

the level of Australian selling could be very substantial (probably somewhere between A$6 and A$10 billion⁵) but will occur over a period of time, possibly 12 months; and

•

the net funds flows before buying by general United States investors and active fund managers is probably negative but this non index demand could be significant (and is even harder to predict). Some estimates suggest that active institutions could invest up to A$14 billion (US$10 billion) if they were to match holdings in other comparable companies but this buying is uncertain and will probably only occur gradually over time (ie. it may not match the selling down).

Depending on how these factors play out, there could be some adverse price movements in the short term particularly in the voting shares (as index buying is likely to be concentrated in the non voting shares). Those investors that have to sell in this period could be disadvantaged but the effects will be cushioned by the initial 100% weighting in the S&P500, the phased reduction in S&P/ASX index weighting and the likelihood of hedge fund buying if the share price fell substantially or arbitrage opportunities arose.

However, these factors will only be short term and should not be over-emphasised. In the long run, the share price will be determined by the fundamentals of News Corp US’s financial performance. It has been suggested that News Corp US will be more highly valued on fundamentals than News Corporation would have been. Reasons put forward include:

•

News Corporation has consistently traded at lower earnings multiples than its peer group companies in the United States (such as Time Warner, Inc., The Walt Disney Company and Viacom, Inc.). Further, News Corporation is generally regarded as having better growth prospects than its peers;

³	Published by Morgan Stanley Capital International Inc.

⁴	Published by FTSE International Limited.

⁵	Based on the current market capitalisation of approximately A$65 billion.

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coverage of News Corp US by analysts is likely to increase;

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some academic studies indicate that inclusion in the S&P500 results in a permanent positive price effect; and

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most trading in News Corporation still occurs on the ASX and the Australian market, on average, trades at lower multiples than the United States market.

On the other hand:

•

there may well be valid reasons for the apparent discount in the News Corporation share price including a higher risk profile (a greater propensity to make significant strategic moves) as well as its corporate complexity and plethora of partly owned associates rather than consolidated businesses. In addition, the discount is not so substantial if News Corporation’s earnings are measured under United States generally accepted accounting principles;

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some influential United States based analysts already cover News Corporation;

•

there are also studies that indicate the S&P500 price effects are temporary. Moreover, all of the studies are based on companies in circumstances quite different to News Corporation; and

•

Australia’s lower average multiples may reflect the different composition of its market which has a heavy weighting towards banks and property investment vehicles.

Regardless, it does appear that the United States market plays an important role in price setting for News Corporation shares. Almost 50% of trading in the preferred shares is through ADSs on the NYSE. It is not unreasonable to argue that the United States market inevitably applies some discount because News Corporation is not a fully fledged United States company. Issues may include concerns over shareholder rights in a foreign jurisdiction and the potential for tax inefficiencies in routing United States earnings through Australia and back to the United States. While there is no hard evidence, Grant Samuel believes that at an intuitive level there should be some positive effect on value from the change of domicile, even if minor.

In any event, it is expected that the discount at which the preferred shares have generally traded will reduce. News Corporation preferred shares have historically traded at an average discount of around 15% (but in a range of 4% to 23%). This discount is substantially greater than the discount at which non voting (or low voting) shares in comparable companies such as Viacom, Inc., Comcast Corporation and Liberty Media Corporation trade. The discount has a material impact because preferred shares represent approximately 65% of the issued capital and have been the primary instrument for raising capital. The Proposal should result in a reduction in the discount for several reasons:

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the likelihood of the non voting shares being the reference stock for the purposes of the S&P500, underpinning demand; and

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the elimination of the “preferred” status of the shares. Some United States institutions are prohibited from investing in preference shares.

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This view is supported by the sharemarket performance since the announcement on 6 April 2004 which shows a sustained reduction in the discount from around 15% to between 6% and 8%:

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At the same time, some element of the discount is often attributed to News Corporation’s extensive use of preferred shares as its primary currency for acquisitions and the potentially dilutive effects of this strategy. This strategy is unlikely to change going forward.

There are also some prospects for improved liquidity in the market for News Corporation shares. The United States is the world’s largest and most liquid equity market. Inclusion in the S&P500 (assuming it occurs) would underpin ongoing demand and stimulate trading. Equally:

•

News Corporation is already a highly liquid stock. There is no evidence that comparable companies in the United States enjoy higher levels of turnover (as a percentage of issued capital) than News Corporation does now although the United States equity market is generally more liquid than the Australian equity market;

•

there have been several block trades in News Corporation shares that demonstrated existing capacity to move very large lines of stock at minimal discounts;

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the higher levels of index fund investment in the United States may lead to a greater proportion of the capital base being “locked up” and effectively reducing the pool available for trading; and

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turnover in News Corporation shares on the ASX may benefit from News Corporation’s high profile and its leadership position in the Australian market.

There may be other benefits such as improved access to capital and an enhanced currency for acquisitions

News Corporation has historically demonstrated a substantial demand for new capital to support its ambitious growth. In the last 20 years, most of this has been raised in the United States (which has been the primary focus of expansion), primarily through the issue of preferred shares (in the form of

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ADSs) to vendors of businesses (eg. Hughes Electronics Corporation/DirecTV, Gemstar-TV Guide International, Inc., Chris-Craft Industries, Inc.) but also through cash placements. In total, almost US$20 billion has been raised since 1996.

While News Corporation has clearly shown an ability to raise substantial levels of capital in the past, there have been issues:

•

the fact that News Corporation is a foreign corporation and not included in the S&P500 means there is no access to new capital from the large body of investment institutions restricted to investing in S&P500 securities and, accordingly, it has not undertaken any general institutional raisings. Similarly, these institutions are not attracted to News Corporation scrip where it is offered as consideration in other transactions;

•

the status of the preferred shares is also problematic for some institutions;

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there has been “flowback” to the Australian market from some recipients of shares in the United States; and

•

the large discount on the preferred shares has effectively raised the cost of capital.

Implementation of the Proposal should eliminate these issues. News Corp US will have access to the full range of United States institutional investors. This is likely to be important as capital will probably be mostly raised in the United States in the future. In particular:

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News Corp US will be better placed to undertake large scale “follow on” offers of securities (akin to placements and jumbo placements in an Australian context). The United States market has demonstrated its capacity to deliver much larger amounts of capital in such raisings than the Australian market; and

•

News Corp US scrip will be more attractive to vendors of businesses than News Corporation scrip.

Shareholders may consider it a disadvantage that News Corp US will be subject to United States corporate law, stock exchange rules and other regulatory requirements

News Corp US and its shareholders will be subject to a different governance and regulatory regime to News Corporation including:

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the rights set out in the certificate of incorporation and by-laws;

•

Delaware corporate law and United States federal law;

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NYSE listing rules; and

•

regulation by the United States Securities & Exchange Commission.

In some respects, this regime affords lesser protection for shareholders, especially minority shareholders, than the Australian regime which applies to News Corporation. In particular, a cornerstone of Australian Corporations law is the “20% rule” which inhibits the ability of any party to acquire more than 20% of the shares in a company without either making an offer to all shareholders or receiving approval from shareholders. These rules do not apply to News Corp US.

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It is not practical to even attempt to consider the full array of potential consequences of this change but some of the more obvious ones are that:

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the Murdoch Interests will be able to increase their holding at any time (eg. by buying on market) and obtain a controlling interest in News Corp US without making an offer (although this would require disclosure). However, the Murdoch Interests would be allowed to acquire 3% of the ordinary share capital every six months even under Australia’s current laws and therefore could achieve the same effect, albeit over a three and a half year period;

•

the Murdoch Interests would be able to sell their interest to a third party by way of private treaty sale at any time without that party making an offer to all shareholders;

•

third parties may be able to obtain a significant stake in News Corp US (greater than 20%) without making an offer to all shareholders if this was acquired on market (although there are some constraints); and

•

in general, there appears to be a greater ability to secure a strong enough position to inhibit an open contest for control.

Other aspects of the regime applying to News Corp US that may be of concern to shareholders include the following:

•

News Corp US will have the ability to implement a shareholder rights plan (colloquially referred to as a “poison pill”) which could inhibit the ability of an investor to acquire a significant stake. However:

–

News Corp US has opted out of certain provisions relating to business combinations which could serve to frustrate an offer;

–

such actions may be of benefit to shareholders depending on the circumstances; and

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there are judicial constraints;

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partial offers which involve a fixed number of shares as opposed to a fixed percentage of each shareholder’s holding are not prohibited;

•

shareholders do not have the capacity to call general meetings of the company;

•

the provisions relating to voting for directors mean that:

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directors can be elected with less than 50% of votes; and

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to vote out an incumbent director will require nomination of an alternative candidate and a plurality vote at a shareholder meeting. Directors may be removed by shareholders only for cause and with a vote greater than 50% of the total issued voting capital;

•

News Corp US is able to issue prior ranking shares without shareholder approval. The terms of such shares could have an adverse impact on the rights or value of existing shares;

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annual general meetings will be held in the United States; and

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shareholders will not benefit from changes to Australian corporate law that provide for reforms such as (non binding) votes on executive remuneration.

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At the same time:

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certain key protections, such as the requirement to make equivalent offers to both classes of shares, are carried over in News Corp US’s certificate of incorporation; and

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some aspects of the United States regime are more favourable to shareholders than the Australian regime including:

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an arguably broader set of circumstances in which non voting shares can vote;

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limits on the number of non voting shares that can be issued; and

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potentially higher hurdles for approval of changes to shareholder rights.

Clearly, there are some aspects that are less favourable to minority shareholders than the Australian regime and these could adversely affect shareholders in some circumstances at a future point in time. Australian shareholders may also be concerned about the transfer to a corporate environment that has evidenced some manifest shortcomings in recent years. However:

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these issues are unlikely to be of concern to United States based shareholders in News Corporation who are presumably comfortable with the Delaware/NYSE regime;

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Delaware is clearly an acceptable place of incorporation for United States companies and investors. More than 50% of the companies in the S&P500 are incorporated in Delaware;

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the problems of recent years in the United States have more to do with personal dishonesty, financial reporting and auditor independence than with rules relating to shareholder rights or takeovers; and

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it is a take it or leave it package. It is not possible to “cherry pick” all of the good points of Australian corporate regulations (even if there was agreement on what they are) and replicate it in the United States. Even if the key protections could be replicated, their legal efficacy is uncertain and it would defeat the purpose of becoming a “normal” United States company.

In the final analysis, this is the cost of being directly present in the world’s largest capital market. The United States is regarded as a satisfactory jurisdiction by most of the world’s leading investors. Ultimately, effective corporate governance and regulation are more dependent on personal behaviour than the rules themselves.

There are other costs, disadvantages and risks which are not inconsequential

Other disadvantages of the change of domicile include:

•

the phasing out of preferential dividend rights that currently attach to the preferred shares. The non voting shares in News Corp US that shareholders receive in exchange for the preferred shares will:

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only rank equally for dividends; and

–

only be entitled to receive the same dividend as voting shares for financial years from 1 July 2007.

However, the dividends currently paid on News Corporation preferred shares are minimal and provide a yield of less than 1% and there is no certainty that dividends will increase if the

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Proposal is implemented. Accordingly, the change in the dividend rights for preferred/non voting shareholders is unlikely to have a material impact on the total returns earned by preferred/non voting shareholders over the period of their investment horizon. Nevertheless, preferred shareholders are giving up a permanent right to a higher dividend that, in the long term, could become economically valuable;

•

those Australian shareholders who hold pre capital gains tax shares (ie. shares acquired before 20 September 1985) will lose that status and become subject to capital gains tax on increases in value from the date the Proposal is implemented. However, apart from the Murdoch Interests, News Corporation estimates that this will apply to only 0.7% of ordinary shareholders and 0.2% of preferred shareholders;

•

Australian shareholders will not receive franked dividends from News Corp US and all shareholders outside the United States will have withholding tax deducted from dividend payments. However:

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News Corporation has only rarely franked its dividends and future franking is expected to be limited;

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dividends have represented only a small element of the total return to shareholders; and

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any withholding tax paid should be creditable against local taxes;

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some shareholders may be subject to tax on the exchange of shares in News Corporation into shares in News Corp US. This is expected to apply to only a small number of shareholders; and

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transaction costs are estimated to be approximately US$49 million (excluding stamp duty that may be applicable to elements of the acquisition of the Cruden Group to be paid by News Corp US). These costs represent around 0.1% of News Corporation’s market capitalisation.

Risks arising from implementation of the re-incorporation include:

•

the possibility that the anticipated buying by active fund managers and other investors in the United States does not eventuate or takes considerably longer to develop. There is no specific trigger (other than inclusion in the S&P500) that will compel them to buy shares in News Corp US;

•

the possibility that Standard & Poor’s will not include News Corp US in the S&P500, delay its inclusion or otherwise change the basis of its inclusion or its phased reduction in the S&P/ASX200;

•

the risks of unknown liabilities or other costs incurred as a result of the acquisition of the Cruden Group in order to implement the Proposal. However, the legal agreements provide for a cash adjustment and extensive warranties and indemnities; and

•

unanticipated legal consequences arising from application of United States corporate law or regulation that are disadvantageous relative to what may have occurred under Australian law.

The acquisition of Queensland Press’s business operations is strategically sensible and is at a fair price

The acquisition of Queensland Press provides several strategic benefits for News Corporation. It cleans up the group structure, eliminating the situation where an associated company also has a significant shareholding in the head company. More importantly, it brings a substantial and attractive

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business into 100% ownership, increasing News Corporation’s consolidated activities, reducing the extent of its partly owned associates and providing direct access to cash flows.

News Corp US will effectively acquire the Cruden Group interest in the newspaper publishing business of Queensland Press on the basis of an agreed value for 100% of the business operations of A$2.95 billion. This price represents the following implied multiples:


Queensland Press – Implied Multiples
	Year end 30 June
	2004 actual (52 weeks)	2005 budget (53 weeks)	2005 adjusted
EBITDA⁶	13.9	11.9	11.8
EBITA⁷	15.2	13.1	13.0

The adjusted earnings for the year ending 30 June 2005 reflect the following major adjustments:

•

conversion of the budgeted numbers from a 53 week year to a 52.2 week year; and

•

allowance for the full year effect of new printing presses and colour capacity currently being installed.

The budget forecasts a strong uplift in earnings (13% on a comparable year basis), primarily as a result of increased volume and yields for classified and national advertising coupled with a reduction in newsprint prices. The implied multiples are relatively high but are not unreasonable having regard to:

•

the attributes of the business including:

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the economic growth prospects for south east Queensland which are arguably the strongest of any region in Australia;

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the attractive competitive environment. While there is always a risk of new competition (particularly because of the attractions of the Queensland market), this seems unlikely in the foreseeable future given the ownership structure of the industry in Australia;

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The Courier-Mail’s position as the only significant daily title in the Brisbane market and its pre-eminent position throughout Queensland. The paper has a circulation of approximately 215,000 (Monday to Friday) and 340,000 on Saturday. The Sunday Mail has a circulation of over 615,000;

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the recent performance of The Gold Coast Bulletin in increasing circulation and the strong population growth of its surrounding area;

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the track record of earnings growth and the potential upside from factors such as the enhanced colour capacity in Brisbane and the Gold Coast; and

–

the high quality infrastructure. The price incorporates the cost of new print facilities at the Gold Coast and the majority of the cost associated with enhanced colour capacity in Brisbane;

•

the transaction involving the acquisition of a controlling interest; and

⁶	EBITDA is earnings before net interest, tax, depreciation, amortisation and other/significant items.

⁷	EBITA is earnings before net interest, tax, amortisation of goodwill and other/significant items.

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•

multiples implied in acquisitions of other newspaper publishers (in Australasia and globally) and by the share prices of listed newspaper groups. Newspaper acquisitions in Australasia have been in the range 7 to 12 times forecast EBITDA but mostly around 10 to 12 for quality groups while Australia’s four listed newspaper groups currently trade in a fairly tight range of 9.6 to 10.9 times forecast 2004/05 EBITDA. Particular regard was had to:

–

the acquisition of Wilson & Horton Limited, the owner of The New Zealand Herald. This transaction implied an overall EBITDA multiple of 10.6 times the current (incomplete) year and 10.0 times the following year. The business included regional and community newspapers and printing businesses. The independent expert applied a multiple of 11.5 to 12.5 times “maintainable” EBITDA for The New Zealand Herald only; and

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the multiples for West Australian Newspapers Limited (“WA Newspapers”), a listed company that publishes The West Australian. This newspaper has characteristics closest to The Courier-Mail. WA Newspapers trades at approximately 10.9 times forecast 2004/05 EBITDA. This share price, while generally regarded as “full” by analysts, does not include a premium for control. In addition, WA Newspapers faces higher prospective capital expenditure requirements than Queensland Press and also faces some level of direct competition. At the same time, the extent of any premium may be tempered by the limited synergies available to News Corp US on acquisition (as the businesses are already integrated).

The Courier-Mail is one of the best newspaper franchises in Australia and accordingly the Queensland Press business (of which The Courier-Mail and The Sunday Mail represent more than 75% of EBIT) warrants a multiple at the upper end of the range. Grant Samuel also undertook a discounted cash flow analysis which resulted in net present values broadly consistent with the agreed enterprise value of A$2.95 billion. A number of different scenarios in addition to management forecasts were considered.

The consideration to be paid in respect of the Murdoch Interests’ shareholding in the Queensland Press business (plus certain non publishing assets and less net borrowings) is 59.72 million voting shares issued at an agreed price equivalent to A$12.13 per News Corporation share. This price was based on the volume weighted average price for the five day period ended 15 July 2004. Since then, the ordinary shares have traded around or below these levels. On this basis, the nominated share price represents a fair market value (if not a slight premium) and the effective consideration is therefore broadly consistent with the agreed value (A$2.95 billion for 100%). As at 13 September 2004, the ordinary share price was A$11.30.

The shares issued to the Murdoch Interests will be added to what is already a significant shareholding in News Corporation. Accordingly, the additional shares issued could attract a premium for control if sold by the Murdoch Interests with the rest of their holding. If the shares were valued on a full control basis the notional value paid for Queensland Press would be higher to the extent the control value of News Corp US (or a significant shareholding) exceeds the market value of shares. However:

•

it is difficult to estimate the extent of any control premium with any reliability;

•

there is no current intention by the Murdoch Interests to sell their holding; and

•

the shares to be issued represent approximately 5.5% of the issued voting shares. The Murdoch Interests could acquire an equivalent number of shares by buying them on market over a 12 month period even under Australia’s limited “creep” provisions (which allow acquisitions of 3% every six months).

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The pro forma impact of the Queensland Press acquisition on News Corporation’s earnings for the year ended 30 June 2004 is slightly positive:


Queensland Press – Earnings Impact on News Corporation(Australian GAAP)
Year ended 30 June 2004	Before	After⁸
EBIT (A$ millions)	4,302	4,495
Net profit (A$ millions)	2,312	2,378
Earnings per share (pre consolidation)	41.1¢	41.4¢

Source: News Corporation, Grant Samuel analysis

There are commercial risks associated with the acquisition of Queensland Press. However these risks are no more than those that arise in any arm’s length acquisition of an operating business in the newspaper publishing industry. The warranties and indemnities in relation to Queensland Press are less than might typically be included in a sale and purchase agreement but this reflects the fact that News Corporation already owns 41.7% of Queensland Press and supervises its management.

Alternatives, apart from the status quo, are limited

News Corporation has advised that it had considered a number of alternatives to the Proposal before settling on the Proposal. If some form of re-incorporation in the United States or creation of a United States based entity is considered beneficial, there are few alternatives to replacement with a new top company. The alternatives include:

•

a dual listed structure between a United States and an Australian entity; and

•

alternative spin outs of all non Australian businesses into a new entity.

All of the above alternatives involve either breaking up the group or have other difficulties (such as tax implications or loss of critical mass). News Corporation has indicated that it considers that its long term strategy is best achieved by preserving the integrated business rather than breaking it up. It also believed that the dual listed structure has its own significant issues. Grant Samuel concurs with this view.

In implementing the change of domicile, there may have been alternatives to the legal structure involving the acquisition of the Cruden Group and Queensland Press but:

•

this structure was settled on as one that created tax efficiencies for the Murdoch Interests (by eliminating multiple layers of tax) without creating adverse effects for News Corporation;

•

it also facilitated the acquisition of Queensland Press and simplified the group structure; and

•

legal protections have been built in to protect against unexpected liabilities.

There are no mechanisms of which Grant Samuel is aware that would avoid the index transition issues.

⁸	The “After” column shows the impact of the acquisition of Queensland Press only. It does not reflect the impact of the acquisition of the balance of the Cruden Group (ie. receivables and net borrowings), which reduces the pro forma earnings per share to 41.2¢.

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The most obvious alternative to the Proposal is the status quo. It is not a “must do” transaction. News Corporation could remain as is. However:

•

a change of domicile is probably inevitable at some point as the shareholder base becomes increasingly dominated by United States investors (assuming further transactions are concentrated in that market). Deferring this event will not make the index and transition issues go away; and

•

such action could hamper News Corporation’s future performance as it may inhibit its ability to grow because of a higher cost of capital.

Optionholders are treated fairly

Executive optionholders will receive new options in News Corp US. They will receive the options on the same basis as shareholders (ie. one for two) with the same expiry date, exercise price (adjusted for the consolidation) and other essential terms as their current options. The position of executive optionholders is preserved in terms of their potential entitlement to value. The Proposal should be positive for shareholder value (relative to the status quo) and optionholders will also participate in that value gain.

4	Other Matters

This report is general financial product advice only and has been prepared without taking into account the objectives, financial situation or needs of shareholders or optionholders in News Corporation. Because of that, before acting in relation to their investment, shareholders and optionholders should consider the appropriateness of the advice having regard to their own objectives, financial situation or needs. Shareholders and optionholders should read the Information Memorandum issued by News Corporation in relation to the Proposal.

Similarly, approval or rejection of the Proposal is a matter for individual shareholders and optionholders, based on their own views as to value and future market conditions, risk profile, liquidity preference, portfolio strategy and tax position. Shareholders or optionholders who are in doubt as to the action that they should take in relation to the Proposal should consult their own professional adviser.

Grant Samuel has prepared a Financial Services Guide as required by the Corporations Act. This document is set out at the beginning of the full report.

This letter is a summary of Grant Samuel’s opinion. The full report from which this summary has been extracted is attached and should be read in conjunction with this summary.

The opinion is made as at the date of this letter and reflects circumstances and conditions as at that date.

Yours faithfully

GRANT SAMUEL & ASSOCIATES PTY LIMITED

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The News Corporation Limited

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Financial Services Guide and

Independent Expert’s Report

in relation to

the Proposed Reorganisation of

The News Corporation Limited

Grant Samuel & Associates Pty Limited

(ACN 050 036 372)

14 September 2004

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Financial Services Guide

Grant Samuel & Associates Pty Limited (“Grant Samuel”) carries on business at Level 19, Governor Macquarie Tower, 1 Farrer Place, Sydney NSW 2000. Grant Samuel holds Australian Financial Services Licence No. 240985 authorising it to provide financial product advice on securities and interests in managed investments schemes to wholesale and retail clients.

The Corporations Act 2001 requires Grant Samuel to provide this Financial Services Guide (“FSG”) in connection with its provision of an independent expert’s report (“Report”) which is included in a document (“Disclosure Document”) provided to members by the company or other entity (“Entity”) for which Grant Samuel prepares the Report.

Grant Samuel does not accept instructions from retail clients. Grant Samuel provides no financial services directly to retail clients and receives no remuneration from retail clients for financial services. Grant Samuel does not provide any personal retail financial product advice to retail investors nor does it provide market-related advice to retail investors.

When providing Reports, Grant Samuel’s client is the Entity to which it provides the Report. Grant Samuel receives its remuneration from the Entity. In respect of the Report for The News Corporation Limited (“News Corporation”) in relation to the proposal to re-incorporate News Corporation in the United States and acquire Queensland Press Pty Limited (the “News Corporation Report”), Grant Samuel will receive a fixed fee of A$1.5 million plus reimbursement of out-of-pocket expenses for the preparation of the Report (as stated in Section 7.3 of the News Corporation Report).

No related body corporate of Grant Samuel, or any of the directors or employees of Grant Samuel or of any of those related bodies or any associate receives any remuneration or other benefit attributable to the preparation and provision of the Report.

Grant Samuel is required to be independent of the Entity in order to provide a Report. The guidelines for independence in the preparation of Reports are set out in Practice Note 42 issued by the Australian Securities Commission (the predecessor to the Australian Securities & Investments Commission) on 8 December 1993. The following information in relation to the independence of Grant Samuel is stated in Section 7.3 of the News Corporation Report:

“Grant Samuel and its related entities do not have at the date of this report, and have not had within the previous two years, any shareholding in or other relationship with News Corporation or Queensland Press that could reasonably be regarded as capable of affecting its ability to provide an unbiased opinion in relation to the Proposal. During the past ten years, Grant Samuel or companies associated with Grant Samuel have been retained as follows:

Grant Samuel was retained by the solicitors of shareholders in Cruden Holdings in relation to certain litigation with the Australian Taxation Office in the years 2002 to 2004. This engagement has ceased; and

Grant Samuel Property Pty Limited was retained as adviser to News Corporation for tenant representation in relation to News Corporation’s property interests in Perth between September 2002 and March 2003.

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In addition, four executives of Grant Samuel and its related entities hold small parcels of shares in News Corporation.

Grant Samuel had no part in the formulation of the Proposal. Its only role has been the preparation of this report.

Grant Samuel will receive a fee of A$1.5 million for the preparation of this report. This fee is not contingent on the outcome of the Proposal. Grant Samuel will receive no other benefit for the preparation of this report.

Grant Samuel considers itself to be independent in terms of Practice Note 42 issued by the ASIC (previously known as Australian Securities Commission) on 8 December 1993.”

Grant Samuel has internal complaints-handling mechanisms and is a member of the Financial Industry Complaints Services’ Complaints Handling Tribunal, No. F 4197.

Grant Samuel is only responsible for the Report and this FSG. Complaints or questions about the Disclosure Document should not be directed to Grant Samuel which is not responsible for that document. Grant Samuel will not respond in any way that might involve any provision of financial product advice to any retail investor.

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Table of Contents


1	Introduction	E-23

2	Scope of the Report	E-29
	2.1 Purpose of the Report	E-29
	2.2 Basis of Evaluation	E-30
	2.3 Sources of the Information	E-31
	2.4 Limitations and Reliance on Information	E-32

3	Profile of News Corporation	E-35
	3.1 Background	E-35
	3.2 Business Operations	E-36
	3.3 Financial Performance	E-39
	3.4 Financial Position	E-43
	3.5 Capital Structure and Ownership	E-44
	3.6 Share Price Performance	E-46

4	Profile of Queensland Press	E-49
	4.1 Background and Business Operations	E-49
	4.2 Profile of Major Newspapers	E-52
	4.3 Financial Performance	E-59
	4.4 Financial Position	E-62

5	Value Analysis of Queensland Press	E-63
	5.1 Summary	E-63
	5.2 Methodology	E-64
	5.3 Assessment of Implied Multiples	E-67
	5.4 Discounted Cash Flow Analysis	E-78
	5.5 Other Items	E-83

6	Evaluation of the Proposal	E-85
	6.1 Background	E-85
	6.2 Approach to the Evaluation	E-87
	6.3 Impact on News Corporation	E-88
	6.4 Impact on the Market for News Corporation Shares	E-93
	6.5 Other Advantages and Benefits of the Re-incorporation	E-109
	6.6 Costs and Disadvantages of the Re-incorporation	E-111
	6.7 Risks associated with the Re-incorporation	E-120
	6.8 Other Issues	E-121
	6.9 Acquisition of the Cruden Group	E-121
	6.10 The Queensland Press Transaction	E-122
	6.11 Optionholders	E-124
	6.12 Alternatives	E-124
	6.13 Conclusion	E-125

7	Qualifications, Declarations and Consents	E-128

Appendices

1	Market Evidence for Newspaper Publishers
2	Share Market Rating of Selected News Corporation Peers

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1	Introduction

On 6 April 2004, The News Corporation Limited (“News Corporation”) announced a proposal to restructure the company (“the Proposal”). In commercial terms, the Proposal has two key elements:

the substitution of a new company (“News Corp US”), as the ultimate holding company for the News Corporation group. News Corp US will be incorporated in Delaware in the United States and have its primary listing on the New York Stock Exchange (“NYSE”). Shareholders in News Corporation (the existing Australian incorporated entity) will effectively exchange their ordinary shares and preferred limited voting ordinary (“preferred”) shares in News Corporation for corresponding shares in News Corp US; and

the acquisition of the 58.3% interest in Queensland Press Pty Limited and its subsidiaries (“Queensland Press”) held by interests associated with the family of Rupert Murdoch and certain other entities (“the Murdoch Interests”). Queensland Press owns The Courier-Mail, The Sunday Mail and certain other regional newspapers. News Corporation currently owns the remaining 41.7% of Queensland Press.

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From a legal perspective, the Proposal will be structured in a different manner but is designed to achieve the same commercial effect. The legal structure of the Proposal is described below.

The Murdoch Interests own 100% of Kayarem Pty Limited (“Kayarem”) which, in turn, owns 100% of Cruden Holdings Pty Limited (“Cruden Holdings”). Kayarem and Cruden Holdings collectively own 96.4% of Cruden Investments Pty Limited (“Cruden Investments”). The other 3.6% of Cruden Investments is owned by a number of trusts which, for this purpose, are part of the Murdoch Interests. These entities (and their other subsidiaries) are collectively referred to in this report as the “Cruden Group”. The Cruden Group owns 58.3% of Queensland Press. The Cruden Group and Queensland Press each also hold ordinary and preferred shares in News Corporation. The existing structure is summarised below (on a simplified basis):

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News Corp US is a new entity currently wholly owned by the Murdoch Interests and with only a nominal amount of capital on issue. To implement the Proposal, a wholly owned subsidiary of News Corp US will enter into various transactions:

all the shares in News Corporation, including those shares held through American Depositary Shares (“ADSs”), but excluding 100 redeemable preference shares issued to News Corp US prior to implementation of the Proposal, will be cancelled in exchange for shares in News Corp US (“the Reorganisation”). Ordinary shareholders will receive one share of voting common stock (“voting shares”) in News Corp US for every two ordinary shares held. Holders of preferred shares will receive one share of non voting common stock (“non voting shares”) in News Corp US for every two preferred shares held. Holders of ADSs (which represent four ordinary or preferred shares) will receive two shares for each ADS. The cancelled shares will then be replaced by new shares with similar terms which will be issued to the News Corp US subsidiary; and

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it will acquire Kayarem and the outstanding 3.6% in Cruden Investments from the Murdoch Interests. The consideration for the Murdoch Interests’ shareholdings in Kayarem and Cruden Investments has several elements:

•

in respect of the 307.83 million ordinary and 69.18 million preferred shares in News Corporation owned by the Cruden Group, the Murdoch Interests will receive voting shares and non voting shares in News Corp US on a one for two basis;

•

other liabilities in the Cruden Group at settlement will be recognised by reducing the number of non voting shares issued above at an agreed price of A$22.70 (equivalent to A$11.35 per News Corporation share, being the weighted average price of the preferred shares for the five days to 15 July 2004). An estimate of the liabilities as at the expected completion date has been agreed at A$326.5 million. In addition, an adjustment will be made for stamp duty in excess of A$18 million, which will be borne by the Murdoch Interests (but paid by News Corp US). This excess is presently estimated to be A$33 million. To the extent that actual liabilities are different to this estimate, there will be a cash adjustment between the parties;

•

other assets in the Cruden Group (essentially cash and receivables in relation to the sale of the art collection and farm) have been estimated at approximately A$25.5 million. In relation to these assets, the Murdoch Interests will receive 1.05 million voting shares in News Corp US (equivalent to 2.10 million ordinary shares in News Corporation) issued at an agreed price of A$24.26 per share (equivalent to A$12.13 per News Corporation share, being the weighted average price of the ordinary shares for the five days to 15 July 2004). Apart from the cash and receivables, the Cruden Group has no material investments other than its shareholdings in News Corporation and Queensland Press. To the extent that actual Kayarem cash and receivables are different to the estimate, there will be a cash adjustment between the parties;

•

in respect of Queensland Press’s business operations, the consideration will be based on an enterprise value for Queensland Press’s business operations of A$2.95 billion plus certain non publishing assets (with an agreed value of A$21.5 million) less net borrowings estimated to be A$487.9 million at completion. The estimated net borrowings allow for sale of assets, interest costs and the impact of the News Corporation dividend reinvestment plan. To the extent actual net borrowings at settlement is different to this estimate, there will be a cash adjustment. The effect of the transaction terms is that the Murdoch Interests will receive their share of the net cash flow of Queensland Press until settlement. This element of the consideration, being 58.3% of A$2,483.6 million, is to comprise 59.72 million voting shares in News Corp US (equivalent to 119.44 million ordinary shares in News Corporation) issued at an agreed price of A$24.26 (equivalent to A$12.13 per News Corporation share). The non publishing assets to be acquired include:

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a commercial property in Brisbane adjacent to the Queensland Press head office;

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interests in the E*TRADE eCommerce Fund, L.P. (“E*TRADE eCommerce Fund”) and ArrowPath Fund II, L.P (“ArrowPath Fund”);

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an 8.8% investment in Australian Associated Press Pty Limited (“AAP”); and

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a 7.7% investment in Comindico Holdings Pty Limited (“Comindico”).

In addition, certain properties and other assets are being sold prior to completion of the Proposal. Most of these assets are minor and have been sold to third parties. The sales are not contingent on the Proposal. The major asset is a Sydney residential property which will be sold to an associate of the Murdoch Interests (or an alternative party nominated by the Murdoch Interests) at an independent valuation undertaken for this purpose. To the extent funds from these transactions are not received prior to completion, they will be reflected in the net borrowings adjustment.

The final number of shares to be issued to the Murdoch Interests may vary slightly because of participation in News Corporation’s dividend reinvestment plan. Technically, the acquisition of Kayarem and the 3.6% of Cruden Investments will occur prior to the Reorganisation but, for practical purposes, all these transactions will occur at the same time. There will also be an internal restructuring pursuant to which non Australian businesses will be moved to become directly owned by News Corp US rather than through News Corporation.

The effect of these transactions is that:

existing shareholders will have exchanged their shares in News Corporation for corresponding shares in News Corp US;

the Murdoch Interests will swap their shares in News Corporation, including their proportionate interest in the shares held through Queensland Press, for shares in News Corp US on the same basis as other shareholders in News Corporation; and

the business of Queensland Press will become wholly owned by News Corp US.

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The structure of the group after implementation of the Proposal (and the internal restructuring) is depicted below (on a simplified basis):

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Other features of the Proposal include the following:

News Corp US is expected to have its primary listing on the NYSE but will also be listed on the Australian Stock Exchange (“ASX”) and the London Stock Exchange (“LSE”);

the preferred shares currently enjoy certain preferential rights in relation to dividends:

•

the shares are entitled to a non-cumulative dividend equal to the higher of:

–

dividends declared by the directors on the preferred shares of up to 15% of paid up capital, or A$0.075 per annum; and

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120% of all dividends declared in respect of ordinary shares in respect of a financial year; and

•

they rank in priority to ordinary shares for the payment of dividends and repayment of capital in a winding up.

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Under the Proposal, the non voting shares in News Corp US will rank equally with voting shares in relation to payment of dividends. Initially, they will be entitled to a dividend equal to the higher of:

•

any dividends declared by the directors on the non voting shares (to a maximum of US$0.10 per annum); and

•

120% of the voting shares dividend.

However the 20% premium will cease in relation to dividends in respect of periods after the year ending 30 June 2007. Thereafter, non voting shares will receive the same dividends as voting shares;

the Cruden Group and Queensland Press will receive shares in News Corp US in exchange for their existing shares in News Corporation. These shares will remain on issue as “hook stock” but because they will be held by subsidiaries of News Corp US the shares will (while they remain held by subsidiaries of News Corp US) not have the right to receive dividends or the right to vote and will not be deemed outstanding for purposes of determining voting requirements, securities or regulatory requirements or any other purpose and may not participate in any tender offer. They will be treated as treasury stock for United States accounting purposes;

for those shareholders with Australian addresses, the shares will be legally registered in the name of CHESS Depositary Nominees Pty Limited, a subsidiary of the ASX. The shares will be represented by CHESS Depositary Interests (“CDIs”) which can be traded through the ASX’s CHESS system;

holders of options in News Corporation issued under the News Corporation Share Option Plan or the News Corporation Australian Executive Option Plan will have their options cancelled and will receive substitute options in News Corp US. In essence, the new options will:

•

be exercisable into 50% of the number of shares as they were previously; and

•

the exercise price will be twice the previous exercise price.

These changes reflect the one for two consolidation of the share capital. In all other material respects, the options will have the same terms and conditions as current options.

Holders of options issued by companies acquired by News Corporation (which have been converted to options over News Corporation shares) will not participate in the schemes of arrangement to implement the Proposal but other adjustments will be made so that they are treated on an equivalent basis;

there will be no changes to the management of the News Corporation group. All the directors of News Corporation in place after the 2004 annual general meeting will become directors of News Corp US; and

shares in News Corp US that would have been issued to ineligible shareholders (ie. those residents outside Australia, New Zealand, the United States, the United Kingdom and a number of other countries) will be sold by a nominee through the sharemarket and the proceeds returned to the ineligible shareholders.

The Proposal requires a number of conditions to be met prior to being implemented. These conditions are set out in full in the Information Memorandum. The conditions include:

approval of the Proposal by each class of News Corporation shareholders and each class of News Corporation optionholders and approval of the share cancellation by all shareholders;

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obtaining a primary listing for News Corp US on the NYSE;

obtaining a full foreign listing for News Corp US on the ASX;

receipt of certain opinions from United States tax advisers; and

obtaining approval from the Foreign Investment Review Board for the Murdoch Interests to acquire News Corp US shares as part of the acquisition of the Cruden Group.

2	Scope of the Report

2.1

Purpose of the Report

The Proposal is to be implemented by:

a members’ scheme of arrangement under Section 411 of the Corporations Act between News Corporation and its shareholders (“the Share Scheme”). Under Section 411, the Share Scheme must by approved by a majority in number (ie. at least 50%) of each class of shareholders present and voting (either in person or by proxy) representing at least 75% of the votes cast on the resolution. For the purposes of the Share Scheme, there are four separate classes of News Corporation shareholders:

•

ordinary shareholders in News Corporation other than those who are associated with the Murdoch Interests and various other family members and related entities (the “Murdoch Family”);

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ordinary shareholders in News Corporation who are associated with the Murdoch Family;

•

preferred shareholders in News Corporation other than those who are associated with the Murdoch Family; and

•

preferred shareholders in News Corporation who are associated with the Murdoch Family.

The Share Scheme also involves a capital reduction under Section 256C of the Corporations Act. The capital reduction must be approved by ordinary and preferred shareholders (voting together) holding at least 75% of the votes cast on the resolution (either in person or by proxy); and

a creditors’ scheme of arrangement under Section 411 of the Corporations Act between News Corporation and its executive optionholders (“the Option Scheme”). Under Section 411, the Option Scheme must by approved by a majority in number (ie. at least 50%) of each class of executive optionholders present and voting (either in person or by proxy) representing at least 75% of the value of the options present and voting. For the purposes of the Option Scheme, there are two separate classes of executive optionholders:

•

executive optionholders in News Corporation other than those who are associated with the Murdoch Family; and

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executive optionholders in News Corporation who are associated with the Murdoch Family.

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The Share Scheme and the Option Scheme will then be subject to approval by the Federal Court.

Part 3 of Schedule 8 to the Corporations Regulations prescribes the information to be sent to securityholders in relation to schemes of arrangement pursuant to Section 411. Part 3 of Schedule 8 requires an independent expert’s report in relation to a scheme of arrangement to be prepared when a party to a scheme of arrangement has a prescribed shareholding in the company subject to the scheme, or where any of its directors are also directors of the company subject to the scheme. As the directors of News Corporation are also directors of News Corp US, a report is required in these circumstances.

Accordingly, News Corporation has engaged Grant Samuel & Associates Pty Limited (“Grant Samuel”) to prepare an independent expert’s report for the purposes of Section 411 of the Corporations Act. The report is to set out Grant Samuel’s opinion as to whether the Proposal is:

in the best interests of shareholders as a whole;

in the best interests of ordinary shareholders in News Corporation;

in the best interests of preferred shareholders in News Corporation; and

in the best interests of executive optionholders in News Corporation.

Grant Samuel is to state reasons for those opinions.

Grant Samuel is independent of News Corporation and has no involvement with, or interest in the outcome of, the Proposal other than the preparation of this report. A copy of this report is to be despatched to shareholders and optionholders with the Information Memorandum prepared by News Corporation.

This report has been prepared by Grant Samuel to assist the directors of News Corporation in making their recommendation to shareholders and optionholders in relation to the Proposal and to assist the shareholders and optionholders of News Corporation to assess the merits of the Proposal. The sole purpose of this report is an expression of Grant Samuel’s opinion as to whether the Proposal is in the best interests of News Corporation shareholders and optionholders. This report should not be used for any other purpose or by any other party.

This report is general financial product advice only and has been prepared without taking into account the objectives, financial situation or needs of News Corporation shareholders or optionholders. Because of that, before acting in relation to their investment, shareholders and optionholders should consider the appropriateness of the advice having regard to their own objectives, financial situation or needs. Shareholders and optionholders should read the Information Memorandum issued by News Corporation in relation to the Proposal.

Approval or rejection of the Proposal is a matter for individual shareholders and optionholders based on their expectations as to value and future market conditions and their particular circumstances including risk profile, liquidity preference, portfolio strategy and tax position. Shareholders and optionholders who are in doubt as to the action they should take in relation to the Proposal should consult their own professional adviser.

2.2

Basis of Evaluation

There is no legal definition of the expression “in the best interests”. The Australian Securities Commission (now the Australian Securities and Investments Commission (“ASIC”)) issued Policy

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Statement 75 which established certain guidelines in respect of independent expert’s reports prepared for the purposes of Sections 411, 640 and 703 of the Corporations Act. Policy Statement 75 is primarily directed towards reports prepared for the purpose of Section 640 and comments on the meaning of “fair and reasonable” in the context of a takeover offer. The statement gives limited guidance as to the regulatory interpretation or meaning of “in the best interests” other than to imply that it is similar to “fair and reasonable”.

Schemes of arrangement pursuant to Section 411 can encompass a wide range of transactions. Accordingly, “in the best interests” must be capable of a broad interpretation to meet the particular circumstances of each transaction. This involves a judgement on the part of the expert as to the overall commercial effect of the transaction, the circumstances that have led to the proposal and the alternatives available. The expert must weigh up the advantages and disadvantages of the proposal and form an overall view as to whether the securityholders are likely to be better off if the proposal is implemented than if it is not.

In Grant Samuel’s opinion, the most appropriate basis on which to evaluate the Proposal is to assess the overall impact on the shareholders and optionholders of News Corporation and to form a judgement as to whether the expected benefits to the shareholders and optionholders outweigh any disadvantages and risks that might result.

In forming its opinion as to whether the Proposal is in the best interests of News Corporation shareholders and optionholders, Grant Samuel has considered the following:

the likely impact on the market for, and the market value of, shares and options in News Corporation;

the impact on News Corporation’s business operations;

the effect on earnings and dividends attributable to existing News Corporation shareholders and optionholders;

the effect on the financial position of News Corporation;

the effective acquisition price paid by News Corporation for the 58.3% interest in the business of Queensland Press compared to the underlying value of the interest in Queensland Press;

any other advantages and benefits arising from the Proposal; and

the costs, disadvantages and risks of the Proposal.

2.3

Sources of the Information

The following information, inter alia, was utilised and relied upon, without independent verification, in preparing this report:

Publicly Available Information

the Information Memorandum relating to the Proposal;

annual reports of News Corporation for the four years ended 30 June 2003;

News Corporation results for the year ended 30 June 2004;

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audited annual accounts for Queensland Press for the three years ended 30 June 2003;

press releases, public announcements, media and analyst presentation material and other public filings by News Corporation, including information available on its website;

brokers’ reports and recent press articles on News Corporation and the media industry (and particularly the newspaper publishing industry) including earnings forecasts;

sharemarket data and related information on Australian and international listed companies engaged in the media industry (particularly the newspaper publishing industry) and on acquisitions of companies in this industry;

sharemarket trading data for the ASX and NYSE available on Bloomberg; and

announcements by Standard & Poor’s regarding News Corporation.

Non Public Information provided by News Corporation and Queensland Press

management accounts for Queensland Press’s newspaper publishing business for the five years ended 30 June 2004;

unaudited annual accounts for Queensland Press for the year ended 30 June 2004;

budget for Queensland Press’s newspaper publishing business for the year ending 30 June 2005 prepared by the management of Queensland Press;

group forecast for Queensland Press’s newspaper publishing business for the five years ending 30 June 2010 prepared by the management of Queensland Press;

analysis of the News Corporation share register by Computershare Analytics Pty Limited (“Computershare Analytics”); and

other confidential documents, board papers, presentations and working papers.

In preparing this report, representatives of Grant Samuel visited Queensland Press’s newspaper publishing facilities at Murarrie and Bowen Hills in Brisbane. Grant Samuel has also held discussions with, and obtained information from, senior management of Queensland Press and News Corporation and News Corporation’s legal and financial advisers and advisers to the Special Committee of News Corporation.

2.4

Limitations and Reliance on Information

Grant Samuel believes that its opinion must be considered as a whole and that selecting portions of the analysis or factors considered by it, without considering all factors and analyses together, could create a misleading view of the process underlying the opinion. The preparation of an opinion is a complex process and is not necessarily susceptible to partial analysis or summary.

Grant Samuel’s opinion is based on economic, sharemarket, business trading, financial and other conditions and expectations prevailing at the date of this report. These conditions can change significantly over relatively short periods of time. If they did change materially, subsequent to the date of this report, the opinion could be different in these changed circumstances. However, Grant Samuel has no obligation or undertaking to advise any person of any change in circumstances which has come to its attention after the date of this report or to review, revise or update its report or opinion.

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This report is also based upon financial and other information provided by News Corporation and its advisers. Grant Samuel has considered and relied upon this information. News Corporation has represented in writing to Grant Samuel that to the best of its knowledge and belief the information provided by it was complete and not incorrect or misleading in any material respect, subject to the fact that forecasts, budgets and other forward looking statements are inherently uncertain and cannot be guaranteed or otherwise warranted by News Corporation. Grant Samuel has no reason to believe that any material facts have been withheld.

The information provided to Grant Samuel has been evaluated through analysis, inquiry and review to the extent that it considers necessary or appropriate for the purposes of forming an opinion as to whether the Proposal is in the best interests of News Corporation shareholders and optionholders. However, Grant Samuel does not warrant that its inquiries have identified or verified all of the matters that an audit, extensive examination or “due diligence” investigation might disclose. “Due diligence” is the responsibility of News Corporation and its management. News Corporation has undertaken its own legal, accounting and tax due diligence investigations and is satisfied with the results. Due diligence is beyond the scope of an independent expert’s report. In any event, an opinion of the kind expressed in this report is more in the nature of an overall review rather than a detailed audit or investigation.

An important part of the information used in forming an opinion of the kind expressed in this report is comprised of the opinions and judgement of management. This type of information was also evaluated through analysis, inquiry and review to the extent practical. However, such information is often not capable of external verification or validation.

Preparation of this report does not imply that Grant Samuel has audited in any way the management accounts or other records of News Corporation or Queensland Press. It is understood that the accounting information that was provided was prepared in accordance with generally accepted accounting principles and in a manner consistent with the method of accounting in previous years (except where noted).

The information provided to Grant Samuel included the budget for Queensland Press for the year ending 30 June 2005 prepared by management of Queensland Press. Queensland Press is responsible for the budget. However, as News Corporation supervises Queensland Press, the budget has also been through the News Corporation budget review process and has been approved by senior management and the board of News Corporation. Grant Samuel has used and relied on the budget for the purposes of its analysis. Grant Samuel has assumed that the budget was prepared appropriately and accurately based on the information available to management at the time and within the practical constraints and limitations of such estimates. Grant Samuel has assumed that the budget does not reflect any material bias, either positive or negative. Grant Samuel has no reason to believe otherwise. The major assumptions underlying the budget were reviewed by Grant Samuel in the context of current economic, financial and other conditions. However, it should be noted that the budget and the underlying assumptions have not been reviewed (nor is there a statutory or regulatory requirement for such a review) by an investigating accountant for reasonableness, accuracy of compilation or appropriate application of assumptions.

Subject to these limitations, Grant Samuel considers that, based on the inquiries it has undertaken and only for the purposes of its analysis for this report (which do not constitute, and are not as extensive as, an audit or accountant’s examination), there are reasonable grounds to believe that the budget has been prepared on a reasonable basis. In forming this view, Grant Samuel has taken the following factors, inter alia, into account:

the budget has been prepared through a detailed budgeting process involving preparation of “ground up” budgets by management of individual newspapers and newspaper publishing operations and then reviewed by the central management of Queensland Press;

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the 2005 budget has been reviewed in detail by News Corporation management as part of its role in supervising Queensland Press;

a review of actual and budgeted performance over the last five years indicates that Queensland Press’s actual results have generally been within 5% of the budgeted results for each year. While there have been exceptions (such as the year ended 30 June 2001 where actual performance was well below budget), this is able to be explained by changes in the newspaper operations or external factors (such as unplanned subscription drives and worse than expected downturn in advertising revenues) which had a major impact on revenue and EBITDA but were not reflected in the budget, rather than a general inability to meet budgeted performance; and

year to date performance (albeit less than two months) is ahead of budget.

Grant Samuel has no reason to believe that the budget reflects any material bias, either positive or negative. However, the achievability of the budget is not warranted or guaranteed by Grant Samuel or News Corporation. Future profits and cash flows are inherently uncertain. They are predictions by management of future events that cannot be assured and are necessarily based on assumptions, many of which are beyond the control of the company or its management. Actual results may be significantly more or less favourable.

As part of its analysis, Grant Samuel has developed a ten year cash flow model which uses the budget for the year ending 30 June 2005 and management forecasts for the five years ending 30 June 2006 to 2010 as a starting point. Grant Samuel has reviewed the sensitivity of the cash flow model to changes in key variables. The sensitivity analysis isolates a limited number of assumptions which are inputs to the cash flow model and shows the impact of the expressed variations to those assumptions on the cash flow model. No opinion is expressed as to the probability or otherwise of those expressed variations occurring. Actual variations may be greater or less than those modelled. In addition to not representing best and worst case outcomes, the sensitivity analysis does not, and does not purport to, show the impact of all possible variations to the business model. The actual performance of the business may be negatively or positively impacted by a range of factors including, but not limited to:

changes to the assumptions other than those considered in the sensitivity analysis;

greater or lesser variations to the assumptions considered in the sensitivity analysis than those modelled; and

combinations of different variations to a number of different assumptions that may produce outcomes different to the combinations modelled.

In forming its opinion, Grant Samuel has also assumed that:

matters such as title, compliance with laws and regulations and contracts in place are in good standing and will remain so and that there are no material legal proceedings, other than as publicly disclosed;

the information set out in the Information Memorandum sent by News Corporation to its shareholders and optionholders is complete, accurate and fairly presented in all material respects;

the publicly available information relied on by Grant Samuel in its analysis was accurate and not misleading;

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the Proposal will be implemented in accordance with its terms; and

the legal mechanisms to implement the Proposal are correct and will be effective.

To the extent that there are legal issues relating to assets, properties or business interests or issues relating to compliance with applicable laws, regulations and policies, Grant Samuel assumes no responsibility and offers no legal opinion or interpretation on any issue.

3	Profile of News Corporation

3.1

Background

News Corporation is one of the world’s leading diversified international media and entertainment companies. The company’s activities are principally conducted in the United States, the United Kingdom, Italy, Asia, Australia and the Pacific Basin. Approximately 70% of News Corporation’s revenues and 84% of operating income for the year ended 30 June 2004 was derived from the United States.

The company’s origins date from 1923 in Australia as a publisher of a daily newspaper in Adelaide. A core strategy of the company has been to become a vertically integrated media group, as both a creator and distributor of content across a range of delivery platforms including cable networks, television and satellite broadcast. The company has expanded and diversified its operations across different markets and media forms through both organic development and acquisitions. News Corporation has been an aggressive acquirer of media businesses over the past 25 years. Landmark events have included:

the acquisition of The Times newspaper group in the United Kingdom in 1981;

the acquisition of Twentieth Century Fox in 1985;

the acquisition of the Herald & Weekly Times group in Australia in 1987;

the establishment of the Fox television network in the United States in 1987;

the development of the British Sky Broadcasting Group plc (“BSkyB”) business in the United Kingdom (originally through the launch of Sky in 1989, but with a key merger in 1990);

the acquisition of the Star satellite business in Asia in 1993;

the launch of Fox News Channel in 1996; and

the acquisition of The DIRECTV Group, Inc. (“DirecTV”) (formerly Hughes Electronics Corporation) in the United States in 2003.

In the short to medium term, News Corporation expects to focus on operational improvements from existing businesses. In the longer term, growth is expected to be organic rather than acquisition driven but acquisitions are nevertheless likely to remain a feature of News Corporation’s activities.

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3.2

Business Operations

News Corporation operates principally in eight industry segments including filmed entertainment, cable network programming, television, direct broadcast satellite television, newspapers, magazines and inserts, book publishing and other. The structure of major businesses and associates of News Corporation is shown in the chart below:

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The main business groups are described below:

Filmed Entertainment, Television and Cable Network Programming

Fox Entertainment Group, Inc. (“Fox Entertainment”) is separately listed on the NYSE and houses News Corporation’s United States content and distribution assets. News Corporation holds 82.06% of the equity and 97.04% of the voting power of Fox Entertainment. Fox Entertainment produces and distributes feature films and television through Fox Filmed Entertainment, a leading producer and distributor of feature films, Twentieth Century Fox Television, a producer of network television programming, Twentieth Television, a producer and distributor of television programming and Fox Television Studios, a producer of broadcast and cable programming. Fox Entertainment owns production facilities in the United States, Australia and Latin America. Fox Entertainment also holds interests in cable network programming businesses in news, sports, general entertainment and movies, including The Fox Cable Networks Group (FX, Fox Movies, Fox Sports etc.) and the Fox News Channel. Through Fox Entertainment, News Corporation owns the Fox Broadcasting Company which has become the fourth free to air television network in the United States. Fox Entertainment owns 35 stations (including duopolies) in key markets, of which 25 are Fox stations and has 196 affiliated television stations.

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News Corporation has other television and cable network programming interests outside of Fox Entertainment. These include its indirect wholly-owned subsidiary, STAR Group Limited, which is involved in the development, production and distribution of television programming throughout Asia and the Middle East and a 50% interest in Fox Sports Australia.

Direct Broadcast Satellite Television

News Corporation has a variety of interests in pay television platforms, most of which utilise satellite delivery, including an approximate 35% interest in BSkyB. BSkyB operates Sky digital, the United Kingdom’s largest digital television platform. In April 2003, News Corporation acquired Telepiu S.p.A. (“Telepiu”), Vivendi Universal’s satellite pay television platform in Italy. Telepiu was then merged with Stream S.p.A. (“Stream”) to form SKY Italia S.r.l. (“SKY Italia”) which is 80.1% owned by News Corporation. SKY Italia is currently the only meaningful multi-channel pay television provider in Italy.

DirecTV is a provider of digital television entertainment, broadband satellite services and video and data broadcasting across the United States. DirecTV is owned 34% by Fox Entertainment and is separately listed on the NYSE. News Corporation also owns 30% of Sky Multi-Country Partners, 30% of Innova, S de R.L de C.V. (Mexico) (“Innova”) and 49.7% of Sky Brasil and has a number of minority interests including a 25% interest in the Australian cable and satellite television service provider FOXTEL and various platforms throughout Asia.

Newspapers

News Corporation publishes more than 195 different newspapers, and prints more than 40 million newspapers per week. News Corporation publishes over 110 titles in Australia (including the Daily Telegraph and The Australian and 80 suburban and community newspapers) and owns 41.7% of Queensland Press. It also publishes nine titles in the United Kingdom (including The Sun, The Times and The Sunday Times) and the New York Post.

Magazines and Inserts

News Corporation is the largest shareholder in Gemstar-TV Guide International, Inc. (“Gemstar-TV Guide”). Gemstar-TV Guide provides interactive programming guides including the TV Guide magazine. News Corporation also owns News America Marketing, a portfolio of consumer promotion media. Other titles include InsideOut, Donna Hay, Smart Source and The Weekly Standard.

Publishing

Through HarperCollins Publishers Inc. (“HarperCollins”), News Corporation is engaged in English language book publishing on a worldwide basis. HarperCollins is one of the world’s largest English language book publishers.

Other

The company’s other interests include NDS Group plc (“NDS”), which specialises in digital television technology and software, News Outdoor Limited, an outdoor advertisement company, ownership of Festival Mushroom Records and an interest in the Australian National Rugby League.

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The composition of operating revenue by business segment and geographic region is shown the charts below:

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3.3

Financial Performance

A summary of News Corporation’s financial performance for the five years ended 30 June 2004 is summarised below. The figures have been prepared using Australian accounting standards and Australian Generally Accepted Accounting Principles (“Australian GAAP”):


News Corporation – Financial Performance (A$ millions)
	Year ended 30 June
	2000 actual		2001 actual		2002 actual		2003 actual		2004 actual
Revenue	22,443		25,578		29,014		29,913		29,428
EBITDA¹	3,304		3,799		4,291		5,128		5,146
Depreciation and amortisation	(521	)	(653	)	(685	)	(697	)	(751	)
EBITA²	2,783		3,146		3,606		4,431		4,395
Amortisation of goodwill	(41	)	(53	)	(64	)	(79	)	(93	)

EBIT³	2,742		3,093		3,542		4,352		4,302
Net interest expense	(814	)	(935	)	(1,000	)	(791	)	(630	)
Exchangeable securities expense	(79	)	(90	)	(93	)	(94	)	(113	)
Net profit/(loss) from associates before other items	(228	)	(162	)	(314	)	(159	)	367

Profit before tax and other items	1,621		1,906		2,135		3,308		3,926
Income tax expense	(225	)	(428	)	(640	)	(989	)	(1,246	)
Outside equity interests	(137	)	(196	)	(348	)	(421	)	(314	)

Net profit before other items	1,259		1,282		1,147		1,898		2,366
Other items (net of tax and outside equity interests)	662		(2,028	)	(13,109	)	(90	)	(54	)
Net profit attributable to News Corporation shareholders	1,921		(746	)	(11,962	)	1,808		2,312
*Statistics*
Diluted earnings per share	46.9	¢	-19.2	¢	-243.1	¢	34.2	¢	41.1	¢
Growth in revenue	na		14.0	%	13.4	%	3.1	%	-1.6	%
Growth in EBIT	na		12.8	%	14.5	%	22.9	%	-1.1	%
EBIT margin	12.2	%	12.1	%	12.2	%	14.5	%	14.6	%

Source: News Corporation

News Corporation is a highly diversified business with earnings generated across eight segments. Over the five years ended 30 June 2004, News Corporation has experienced strong growth in revenue and EBIT averaging approximately 7% and 10% per annum respectively in A$ terms or 11% and 16% per annum respectively in US$ terms. Approximately 70% of News Corporation’s revenues are generated in US$ and, accordingly, results are impacted by the A$/US$ exchange rate. For example, in 2004, EBIT rose 21% in US$ terms but declined by 1% in A$ terms reflecting the significant depreciation in the US$ over the year.

¹	EBITDA is earnings before net interest, tax, depreciation, amortisation and other/significant items.

²	EBITA is earnings before net interest, tax, amortisation of goodwill and other/significant items.

³	EBIT is earnings before net interest, tax and other/significant items.

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An analysis of performance by industry segment in US$ terms is set out below. This table excludes contributions from partly owned associates such as BSkyB:


News Corporation – Segment Performance (US$ millions)
	Year ended 30 June
	2000 actual		2001 actual		2002 actual		2003 actual		2004 actual
Revenue
Filmed Entertainment	3,856		3,666		4,040		4,486		5,187
Television	3,684		3,690		4,274		4,763		5,027
Cable Network Programming	1,264		1,455		1,869		2,270		2,538
Direct Broadcast Satellite Television	-		-		-		220		1,665
Magazines and Inserts	999		904		864		923		979
Newspapers	2,804		2,482		2,411		2,718		3,425
Book Publishing	1,031		1,029		1,078		1,162		1,276
Other	513		576		659		932		862
Total revenue	14,151		13,802		15,195		17,474		20,959
EBIT
Filmed Entertainment	119		265		473		641		886
Television	706		542		458		851		957
Cable Network Programming	76		106		199		430		617
Direct Broadcast Satellite Television	-		-		-		(68	)	(267	)
Magazines and Inserts	259		236		235		256		271
Newspapers	548		488		430		400		592
Book Publishing	89		111		118		133		158
Other	(68	)	(79	)	(58	)	(111	)	(150	)
Total EBIT	1,729		1,669		1,855		2,532		3,064
*Statistics*
Growth in revenue	na		-2.5	%	10.1	%	15.0	%	19.9	%
Growth in EBIT	na		-3.5	%	11.1	%	36.5	%	21.0	%
EBIT Margin	12.2	%	12.1	%	12.2	%	14.5	%	14.6	%

Source: News Corporation annual reports and press releases

The filmed entertainment and television segments together have been the largest contributors to News Corporation’s performance since 2003 and collectively represented approximately 49% of revenue and 60% of EBIT in the year ended 30 June 2004. The contribution by the newspaper segment, the third largest contributor to performance, has fluctuated since 2000 although this is partly due to volatility in the US$ over the period (as the operations are primarily located in Australia and the United Kingdom).

The filmed entertainment and cable network programming businesses are dependent on the commercial success of the programming content (eg. feature films and television series) developed by the company for sale into the theatrical, television, cable, home entertainment and related markets and therefore revenues from those sources are less predictable. Nevertheless, the group has enjoyed consistent success over the last five years with global hits such as X-Men, Cast Away, Moulin Rouge and Planet of the Apes. It has also had continued strength in television production (The Simpsons, X-Files etc.). However, an important contributor to the outstanding earnings growth since 2000 has been the worldwide growth in the home entertainment market and DVD sales. The growth in

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earnings from cable network programming reflects across the board success of its various channels, particularly Fox News Channel (now the number one cable news service) which has achieved unprecedented growth in subscribers.

A significant proportion of the company’s revenues (in excess of 40% in 2004) is generated from advertising sales through the television, direct broadcast satellite television, cable networks, newspapers and inserts businesses and there is a high proportion of fixed costs in these businesses, resulting in substantial operating leverage. As a consequence, results for the 2001 and 2002 financial years were impacted by the weak advertising market, particularly in the United States, which began to recover in late 2002/early 2003.

The growth in revenue also reflects a number of acquisitions including that of the Chris-Craft Industries, Inc. (“Chris-Craft”) television stations in July 2001, a controlling interest in SPEED cable channel in 2002 and the consolidation of two months of results of SKY Italia acquired in April 2003 (which was previously accounted for as an associate) in 2003.

News Corporation also has a number of non-controlling interests in broadcasting assets (including the 35% interest in BSkyB and other international satellite platforms), several of which are developmental (in terms of subscriber numbers and revenue growth) and yet to make a positive contribution to earnings. The contribution from associates for the year ended 30 June 2004 includes six months of the results of DirecTV acquired on 22 December 2003. The composition of the contribution from associates for the last five years is summarised below:


News Corporation – Share of Associated Entities Profits/(Losses) (A$ millions)
	Year ended 30 June
	2000 actual		2001 actual		2002 actual		2003 actual		2004 actual
BSkyB (35%)⁴	(150	)	(76	)	(51	)	132		315
Sky Brasil and Innova	(129	)	(153	)	(212	)	(93	)	(60	)
FOXTEL (25%)	(11	)	(11	)	(15	)	(15	)	(27	)
Stream (50%)⁵	-		-		(66	)	(294	)	-
Other⁶	62		78		30		111		139
Associated entities profits/(losses) before other items	(228	)	(162	)	(314	)	(159	)	367
Other items	(70	)	(87	)	(1,120	)	70		(45	)
Associated entities profits/(losses)	(298	)	(249	)	(1,434	)	(89	)	322

Source: News Corporation

Revenue and EBIT growth, particularly from filmed entertainment and expansion of the group’s cable network programming businesses, has not (until recently) been translated into net earnings growth for shareholders. This has been due to write downs and losses on sales of non-core assets sales and the funding of acquisitions principally by equity issuance which has resulted in dilution of earnings per share.

⁴	News Corporation’s investment basis was negative from 31 December 2001 through to 11 November 2002 and therefore the company’s share of BSkyB’s results was not recognised during this period.

⁵	The company’s share of Stream’s losses was included as part of associated entities from 1 April 2002 until 30 April 2003 when it was merged with Telepiu to form the consolidated entity SKY Italia.

⁶	Other primarily comprises Gemstar-TV Guide, DirecTV, Independent Newspapers Limited, Queensland Press, The National Geographic Channel as well as Fox Family Worldwide and Fox Sports International until each was sold in 2001.

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In particular, in 2002 News Corporation recorded a substantial net loss due to write downs in the carrying value of News Corporation’s investments in Gemstar – TV Guide (A$11 billion), Stream (A$590 million), KirchMedia (A$460 million) and News Corporation’s share of BSkyB’s write off in its investment in KirchPayTV (A$1.1 billion).

Other items for the last five years are summarised in the following table:


News Corporation – Other Items (A$ millions)
	Year ended 30 June
	2000 actual		2001 actual		2002 actual		2003 actual		2004 actual
Disposal of interests in subsidiaries	-		-		-		504		(142	)
Sale of:
Fox Family Worldwide	-		-		2,323		-		-
Echostar shares	598		415		468		-		-
Outdoor Life Network	-		-		271		-		-
The Golf Channel	-		476		-		-		-
Healtheon/WebMD	-		(426	)	-		-		-
Write-down of investments:
Gemstar-TV Guide	-		-		(11,138	)	(551	)	-
Knowledge Enterprises	-		-		-		(158	)	-
Sports rights	-		-		(1,861	)	-		-
Stream	-		-		(590	)	-		-
KirchMedia	-		-		(460	)	-		-
One.Tel Limited	-		(576	)	-		-		-
Dividend income	-		-		-		-		73
NDS float	220		-		-		-		-
Early extinguishment of debt	-		-		(191	)	(143	)	(18	)
Write-down/sale of other non-current assets	504		(923	)	(756	)	(30	)	61
Other	(136	)	(240	)	(40	)	-		-
Change in accounting policy⁷	-		(1,107	)	-		-		-
Other items (before tax)	1,186		(2,381	)	(11,974	)	(378	)	(26	)
Tax on other items	(454	)	440		(15	)	218		17
Other items from associated entities	(70	)	(87	)	(1,120	)	70		(45	)
Other items (after tax)	662		(2,028	)	(13,109	)	(90	)	(54	)

Source: News Corporation

⁷	In 2001 News Corporation changed its accounting policy relating to marketing and development costs incurred in the production and distribution of films such that these costs were expensed as incurred going forward. In prior periods these costs were capitalised and expensed over time.

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3.4

Financial Position

News Corporation’s financial position as at 30 June 2003 and 2004 is summarised below:


News Corporation – Financial Position (A$ millions)
	As at 30 June
	2003 actual		2004 actual
Receivables and prepayments	6,184		6,602
Inventories	1,931		2,193
Payables	(8,298	)	(7,847	)
Provisions	(972	)	(1,037	)
Net working capital	(1,155	)	(89	)
Inventories	4,103		3,824
Property, plant and equipment	6,299		5,565
Investments in associated entities	5,526		14,971
Other investments	1,195		811
Publishing rights, titles and television licences	32,724		31,185
Goodwill	377		318
Other	(3,279	)	(2,750	)
Total funds employed	45,790		53,835
Net borrowings	(4,985	)	(6,253	)
Exchangeable securities	(2,084	)	(2,055	)
Net assets	38,721		45,527
Outside equity interests	(6,397	)	(5,650	)
Equity attributable to News Corporation shareholders	32,324		39,877
*Statistics*
NTA⁸ per share	$2.08		$3.56
Gearing⁹	10.9	%	11.6	%

Source: News Corporation

As a creator and distributor of television content and filmed entertainment, News Corporation’s financial position includes substantial intangible assets, including television licences and newspaper mastheads (A$31.2 billion as at 30 June 2004).

Investments in associated entities represents listed (A$11.8 billion) and unlisted (A$3.2 billion) investments. The acquisition of a 34% interest in DirecTV in December 2003 resulted in an increase in investments in associates at 30 June 2004 of A$9.8 billion.

Inventories (current and non current) principally represent unamortised filmed entertainment, television and sports programming rights.

Other represents the non current portion of receivables, prepayments, payables, provision for deferred income tax and other provisions.

⁸	NTA is net tangible assets, which is calculated as equity attributable to News Corporation shareholders less intangible assets, adjusted for the market value of listed investments.

⁹	Gearing is net borrowings divided by total funds employed.

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Exchangeable securities essentially represent securities that are exchangeable into ordinary shares in BSkyB, although they are also redeemable (in BSkyB shares or cash) in certain circumstances.

Acquisitions have been principally funded through equity issues and as a result, gearing remains low at 11.6%.

3.5

Capital Structure and Ownership

3.5.1

Overview

News Corporation had 2.10 billion fully paid ordinary shares and 3.87 billion fully paid preferred shares on issue at 30 June 2004. The company’s issued capital includes 2.85 billion shares held through ADSs on issue in the United States (48% of total issued capital). Each ADS represents four shares.

The share capital of News Corporation is summarised in the table below:


News Corporation – Share Capital as at 30 June 2004
	Ordinary	Preferred	Total
Total issued shares	2,099,924,431	3,869,681,290	5,969,605,721
Shares held through ADSs	507,149,404	2,339,963,548	2,847,112,952
ADSs (represents 4 shares)	126,787,351	584,990,887	711,778,238
ADSs as a percentage of total	24.2%	60.5%	47.7%

Source: News Corporation

A subsidiary of News Corporation has also issued a total of 13.80 million preference shares which are redeemable at the option of News Corporation and rank after all debt holders in respect of dividends and repayment of capital. Dividends on these preference shares can only be paid out of available profits.

3.5.2

Ordinary Shares

At 12 August 2004, News Corporation had 64,681 registered holders of ordinary shares. The following table sets out the major holders of ordinary shares in News Corporation at 12 August 2004:


News Corporation – Top Ten Ordinary Shareholders
Shareholder	Number of Shares (millions)	% Interest
Cruden Group	626.97	29.86	%
Citicorp Nominees Pty Limited	598.07	28.48	%
Westpac Custodian Nominees Limited	170.45	8.12	%
JP Morgan Nominees Australia Limited	169.31	8.06	%
National Nominees Limited	154.33	7.35	%
ANZ Nominees Limited	63.67	3.03	%
RBC Global Services Australia Nominees Pty Ltd	28.26	1.35	%
Cogent Nominees Pty Limited	25.72	1.22	%
Queensland Investment Corporation	16.82	0.80	%
HSBC Custody Nominees (Australia) Limited	13.89	0.66	%
Top ten ordinary shareholders	1,867.49	88.93	%
Other shareholders	232.43	11.07	%
Total ordinary shareholders	2,099.92	100.00	%

Source: News Corporation

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Substantial holders with an interest in News Corporation ordinary shares greater than 5% at 12 August 2004 are set out below:


News Corporation – Substantial Ordinary Shareholders as at 12 August 2004

Shareholder	Number of Shares (millions)	% Interest
Cruden Group/Rupert Murdoch	626.97	29.86	%
Liberty Media Corporation	192.00	9.15	%
Fidelity Group	151.13	7.20	%

Source: IRESS, News Corporation

3.5.3

Preferred Shares

News Corporation preferred shares have the following characteristics:

an effective dividend entitlement equal to the higher of:

•

such amount as the directors declare up to a maximum of 15% on capital. The original par value of the shares was 50 cents which results in an annual dividend of up to 7.5 cents per share; and

•

the dividend paid on ordinary shares plus a premium of 20%;

rank in priority to ordinary shares:

•

in relation to dividends; and

•

on a winding up (as to return of capital and any unpaid dividends);

participate in any surplus on a winding up on a pro rata basis with holders of ordinary shares;

voting rights may only be exercised at a general meeting in the following circumstances:

•

on proposals to reduce the share capital of News Corporation, to wind up News Corporation or for the disposal of the whole of the property, business and undertaking of News Corporation;

•

on a proposal that affects the rights attached to preferred shares;

•

during a period in which a dividend on a preferred share is in arrears; or

•

on a resolution to approve the terms of a buy-back agreement; and

if a formal takeover offer is made for the ordinary shares, an offer at the same price per share and on otherwise comparable terms must also be made for the preferred shares.

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At 12 August 2004, News Corporation had 18,907 registered holders of preferred shares. The following table sets out the major holders of preferred shares in News Corporation at 12 August 2004:


News Corporation – Top Ten Preferred Shareholders
Shareholders	Number of Shares (millions)	% Interest
Citicorp Nominees Pty Limited	2,481.57	64.12	%
JP Morgan Nominees Australia Limited	361.34	9.34	%
Cruden Group	217.20	5.61	%
National Nominees Limited	204.48	5.28	%
Westpac Custodian Nominees Limited	187.86	4.85	%
RBC Global Services Australia Nominees Pty Ltd	57.13	1.48	%
Cogent Nominees Pty Limited	44.50	1.15	%
Queensland Investment Corporation	42.92	1.11	%
ANZ Nominees Limited	40.87	1.06	%
AMP Life Limited	31.77	0.82	%
Top ten preferred shareholders	3,669.64	94.82	%
Other shareholders	200.35	5.18	%
Total preferred shareholders	3,869.99¹⁰	100.00	%

Source: News Corporation

Substantial holders with an interest in News Corporation preferred shares greater than 5% as at 12 August 2004 are set out below:


News Corporation – Substantial Preferred Shareholders as at 12 August 2004
Shareholder	Number of Shares (millions)	% Interest
Liberty Media Corporation	843.06	21.79	%
Capital Group	313.37	8.10	%
Cruden Group/Rupert Murdoch	217.20	5.61	%

Source: News Corporation

3.5.4

Options

As at 12 August 2004, News Corporation had 8,000 options outstanding over ordinary shares and options outstanding over 286.2 million preferred shares (including options over ADSs). All the options have been issued under various executive and staff option plans, except for 11.5 million which were issued by companies acquired by News Corporation and have been converted to options over News Corporation shares. The options have a variety of exercise prices (A$4.57 to A$22.00) and expiry dates (up to 2014).

3.6

Share Price Performance

News Corporation currently has a primary listing on the ASX and secondary listings on the NYSE, the LSE and the New Zealand Stock Exchange. Shares are traded on the NYSE through the ADS program.

¹⁰	The number of preferred shares on issue at 12 August 2004 (3,869,986,390) is different from that on issue at 30 June 2004 (3,869,681,290) (referred in to Section 3.5.1) as a result of the exercise of executive options during this period.

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The share price and trading history of trading in ordinary shares on the ASX since January 1999 is set out below:


News Corporation – Ordinary Share Price and Trading History
	Share Price (A$)			ASX Trading
	Share Price (A$)			Average Weekly Volume (000s)	Average Weekly Transactions
	High	Low	Close	Average Weekly Volume (000s)	Average Weekly Transactions
Year ended
1999	16.10	9.81	14.79	17,698	2,436
2000	28.00	13.51	14.00	25,325	4,708
2001	19.95	11.78	15.62	29,493	5,417
2002	15.78	8.44	11.48	48,471	8,968
2003	13.81	9.19	11.99	43.481	7,664
Quarter ended
March 2004	12.56	11.39	11.78	49,187	6,740
Month ended
April 2004 (announcement 6 April 2004)	13.20	11.78	12.77	51,603	7,331
May 2004	13.01	12.56	12.97	36,136	4,889
June 2004	13.29	12.42	12.68	49,085	6,008
July 2004	12.74	11.97	12.22	34,252	5,830
August 2004 (to 13 August 2004)	12.35	10.85	11.15	47,392	8,315

Source: IRESS

The share price and trading history of preferred shares on the ASX since 1 January 1999 is set out below:


News Corporation – Preferred Share Price and Trading History

	Share Price (A$)			ASX Trading
	Share Price (A$)			Average Weekly Volume (000s)	Average Weekly Transactions
	High	Low	Close	Average Weekly Volume (000s)	Average Weekly Transactions
Year ended

1999	14.60	9.15	13.05	16,373	1,245
2000	25.00	12.10	12.80	16,480	2,042
2001	17.62	10.22	13.05	17,386	2,129
2002	13.25	7.10	9.55	27,957	3,181
2003	11.66	7.65	10.00	25,731	3,395

Quarter ended
March 2004	10.90	9.95	10.39	46,044	3,194

Month ended
April 2004 (announcement 6 April 2004)	12.40	10.37	11.85	45,017	3,504
May 2004	12.10	11.56	11.93	26,995	2,518
June 2004	12.44	11.41	11.75	39,908	2,976
July 2004	11.82	11.14	11.47	17,622	2,405
August 2004 (to 13 August 2004)	11.48	10.16	10.49	28,207	3,311

Source: IRESS

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The following graph illustrates price movements and trading volumes for News Corporation ordinary and preferred shares on the ASX since January 1999:

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The share issues that have funded acquisitions have been preferred shares and accordingly, over time, this has resulted in a larger number of preferred shares than ordinary shares on issue. In addition, there is a larger free float of preferred shares than ordinary shares. Trading has therefore gravitated towards the preferred shares although the ordinary shares continue to demonstrate higher levels of relative liquidity. Turnover and liquidity statistics are summarised below:


News Corporation – Turnover for Year ended 30 June 2004
					Volume Traded (millions)			Turnover
Share	Average Issued Shares¹¹(millions)	Liquidity Factor¹²(%)		Average Free Float (millions)	ASX	NYSE (ADSs)¹³	Total	% of Issued Shares		% of Free Float
Ordinary	2,098.5	61.0	%	1,280.1	2,302.7	1,221.3	3,524.0	167.9	%	275.3	%
Preferred	3,615.2	72.0	%	2,602.9	1,739.5	1,516.6	3,256.1	90.1	%	125.1	%

Source: IRESS

¹¹	Number of issued shares and free float shares is an average of issued capital at 30 June 2003 and 30 June 2004.

¹²	Liquidity factor represents the percentage of shares held by shareholders other than the Murdoch Interests and Liberty Media Corporation as assessed for S&P/ASX index purposes.

¹³	Reflects the underlying number of shares traded not ADSs traded (each ADS represents four ordinary or preferred shares).

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The relative performance of News Corporation ordinary shares, the S&P/ASX All Ordinaries Index, the S&P/ASX Media Index and the S&P500 in the last two and a half years is summarised in the graph below:

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News Corporation’s underperformance relative to the S&P/ASX All Ordinaries Index is due to a wide range of factors. The decline in 2002 to some extent mirrors similar declines by its United States media peers from the post technology “bubble” share price highs and may also have reflected macro factors such as the high exposure to a very weak United States economy and a particularly weak advertising market. It may also reflect company specific developments such as the announcement of over A$13 billion in abnormal write downs in the 2002 year (principally relating to Gemstar-TV Guide) and selling pressure related to the de-weighting in the S&P/ASX indices on 30 September 2002 from 6.3% to 5.3% of the S&P/ASX200 following the introduction of the free float adjustment. The more recent period of underperformance against the S&P/ASX All Ordinaries Index may, at least in part, reflect News Corporation’s US$ earnings base at a time when the A$ strengthened against the US$ but it has also underperformed against the S&P500.

4	Profile of Queensland Press

4.1

Background and Business Operations

Queensland Press’s main activity is newspaper publishing and printing in Queensland. It is the publisher of the leading Queensland newspapers, The Courier-Mail and The Sunday Mail which, while Brisbane based, serve the south east Queensland area and beyond. Queensland Press also owns the leading newspapers on the Gold Coast and in Cairns, The Gold Coast Bulletin and The Cairns Post.

Queensland Press owns printing facilities at each of its major locations, at Murarrie in Brisbane, Molendinar on the Gold Coast and in Cairns. In addition to printing the various newspapers, magazines and inserts published by Queensland Press in each of these regions, it also undertakes printing activities for other entities in the News Corporation group as well as a small amount of third party contract printing, although these activities are peripheral to the main activity of newspaper

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publishing. Queensland Press prints the Queensland edition of The Australian and the Quest community newspapers for News Corporation on a cost recovery basis. Third party contract printing is undertaken at Molendinar and in Cairns, although its contribution to revenue and earnings is immaterial.

A$44 million has recently been invested in a new printing facility at Molendinar. The installation was completed over a 20 month period and the first newspapers were printed on the new press in May 2004, with the new press fully operational in late July 2004. A substantial upgrade of the four printing presses at the Murarrie facility in Brisbane is planned for the 2005 financial year, with A$35 million forecast to be spent upgrading the colour capacity of each of the presses to increase their current capacity by 50%. This upgrade is expected to commence in December 2004 and be completed by September 2005.

Queensland Press is 58.3% owned by the Murdoch Interests with the remaining 41.7% owned by News Corporation. Although not a controlled entity of News Corporation, Queensland Press and News Corporation’s Australian newspaper publishing business enjoy the benefits of belonging to a larger media group in areas such as strategy, editorial content, national advertising and production, where there is a sharing of knowledge and technology and in purchasing. Areas of cost sharing or co-operation between Queensland Press and News Corporation’s Australian newspaper publishing business include:

Newsnet, a metropolitan newspaper network which represents 14 metropolitan newspapers (including The Courier-Mail and The Sunday Mail) to major clients for national display advertising;

NewsAdvantage, a concept developed by News Corporation for customer focussed classified advertising. The NewsAdvantage customer contact centre in Brisbane is the second of five such centres proposed by News Corporation across Australia. It handles classified customers for The Courier-Mail and the Quest community newspapers;

News Interactive, which provides Queensland Press and News Corporation with the ability to aggregate classified advertising across Australia into specialised internet sites for employment (careerone.com.au), real estate (realestate.com.au) and motoring (carsguide.com.au) that are owned by News Corporation;

the supply of newsprint to Queensland Press is under a contract entered into between News Limited (a subsidiary of News Corporation) and Norske Skog (Australasia) Pty Limited (“Norske Skog”). This contract remains in force until terminated by either party, but this cannot occur any earlier than 30 June 2010. The terms of this contract, in particular price, reflect the supply of newsprint to all of News Corporation’s Australian newspaper operations, including Queensland Press. Similar group purchasing arrangements exist for major cost inputs including energy, external printing, distribution, telecommunications and information technology; and

the support of News Corporation bureaux and wire services which provide national editorial content for all of Queensland Press’s newspapers.

In August 2003, Queensland Press paid A$2.2 million to acquire 100% of the issued capital of the Dialect Solutions Group (“Dialect”), a group created by the merger of three companies, including two companies previously owned by Queensland Press (QSI Payments, Inc. and News Connect Pty Ltd). Dialect provides technology solutions for payments processing and interactive communication services to businesses worldwide. Queensland Press’s 100% interest in Dialect has been sold as part of the Proposal.

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Queensland Press also holds investments in a number of listed and unlisted entities involved in the media and electronic media industries. A number of these investments, including Dialect and a residential property in Sydney (collectively referred to as the “excluded investments”), have been sold prior to, or as part of, the Proposal. The investments that are being retained by Queensland Press are:

319.14 million ordinary shares (15.20%) and 148.01 million preferred shares (3.82%) in News Corporation (held through a subsidiary, Telegraph Investment Co Pty Limited);

a commercial property in Brisbane adjacent to the Queensland Press head office;

a US$15 million commitment (representing a 13.9% interest) in the E*TRADE eCommerce Fund, a US$107.8 million limited partnership formed in October 1999 for the purpose of investing funds in securities of development stage companies primarily in the electronic commerce industry, as well as internet infrastructure companies and other enabling technologies. The fund has a term of 10 years. As at 30 June 2004, Queensland Press had invested US$14.25 million in the fund with a further US$0.75 million committed;

a US$15 million commitment (representing a 7.3% interest) in the ArrowPath Fund, a US$206.3 million limited partnership formed in June 2000 for the same purpose as the E*TRADE eCommerce Fund. The fund has a term of 10 years. As at 30 June 2004, Queensland Press had invested US$5.2 million in the fund with a further US$9.8 million committed;

1.3 million shares (representing an 8.8% interest) in AAP, Australia’s largest independent news and information provider specialising in the delivery of real-time news and information; and

44.6 million ordinary shares and 4,745.7 million Series 4X convertible preference shares (representing a fully diluted interest of 7.7%) in Comindico, an unlisted public telecommunications company that owns a national internet-protocol based telecommunications network which can carry voice, data and multimedia traffic simultaneously. It provides carriage services to internet service providers and corporations both directly and through channel partners. Comindico has been loss making since its inception in May 2000.

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4.2

Profile of Major Newspapers

Queensland Press’s newspaper titles are set out in the following table. Each of the regional business units generally comprises a daily paid title and one or more weekly free titles:


Queensland Press – Newspapers
Regional Business Unit	Paid Daily/Weekly	Associated Publications¹⁴
Regional Business Unit	Paid Daily/Weekly	Free	Paid
Brisbane	The Courier-Mail The Sunday Mail	Brisbane News
Gold Coast	The Gold Coast Bulletin The Weekend Bulletin	Gold Coast Sun (North and South editions) Tweed Sun
Cairns	The Cairns Post The Cairns Weekend Post	Cairns Sun Passport to Cairns¹⁵	Tablelands Advertiser Port Douglas & Mossman Gazette¹⁶ Cairns Post Exchange¹⁵

A profile of each of the major newspapers is set out in the following sections.

4.2.1

The Courier-Mail

The Courier-Mail is a daily broadsheet newspaper published Monday to Saturday and distributed in Brisbane and throughout Queensland, although approximately 70% of sales are in Brisbane. To provide local coverage, five separate editions of The Courier-Mail are published, covering the Brisbane metropolitan area, Gold Coast, Sunshine Coast, Moreton region and North Queensland. It is Australia’s second highest selling daily broadsheet (after the Sydney Morning Herald), and is the only daily newspaper servicing the Brisbane region. There has been no daily print competitor in Brisbane since News Corporation’s daily tabloid The Telegraph ceased publication in 1988. The only daily print competition for The Courier-Mail comes from News Corporation’s national daily, The Australian, which has a relatively small circulation in Brisbane. The Courier-Mail is an important source of local news, particularly with the decline of local content in other forms of media.

Recent product development for the weekday edition (such as Today, Good Life, The Guide, Sport and Q Confidential) has focussed on linking the newspaper with the metropolitan market, to support its dominant position in Brisbane.

¹⁴	Excludes inserts such as TV Guide and Home.

¹⁵	Passport to Cairns and Cairns Post Exchange are custom publishing initiatives undertaken by Queensland Press in Cairns.

¹⁶	Queensland Press owns 70% of Duvir Holdings Pty Limited, the publisher of Port Douglas & Mossman Gazette. The remaining 30% is owned by an unrelated third party.

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The Courier-Mail’s circulation and readership since December 1999 is summarised in the following chart:

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Circulation of both the weekday and Saturday editions of The Courier-Mail has been relatively stable over the past four years. Cover price increases from A$0.80 to A$1.00 for the weekday edition and from A$1.30 to A$1.60 for the Saturday edition achieved over this period have corresponded with product improvements and have not significantly affected circulation. Weekday circulation has been maintained at around 215,000-220,000 (although it is currently at around the 215,000 level) and Saturday circulation at around 335,000-345,000. Stable circulation is assisted by a relatively high proportion of sales to subscribers, with over 50% of weekday and around 35% of Saturday sales on this basis. Sales are primarily through a network of 1,000 newsagents and 3,500 subagents, most of which are on individual contracts as well as through supermarkets, convenience stores, service stations and other outlets.

Readership has grown over this period from around 605,000 to more than 625,000 for the weekday edition (representing readership penetration in Queensland of 20%) and from around 910,000 to over 940,000 for the Saturday edition (representing readership penetration in Queensland of more than 30%), although readership did peak at 968,000 in December 2002. The Courier-Mail is very strong in the most attractive sectors of the Queensland market, reaching 34% (weekday) to 50% (Saturday) of the AB demographic. Recent growth in readership has been predominantly in the AB demographic and upper income groups.

The Courier-Mail has a consistent record of strong earnings and high margins and generates over half of Queensland Press’s newspaper publishing revenue and EBITDA. Advertising revenue (which represents around 80% of total revenue) is approximately two-thirds classified and one-third display. Classified advertising is driven by employment (35-40% of classified revenue), real estate (30% of classified revenue) and motor vehicles (20-25% of classified revenue) and has benefited from the impact of the NewsAdvantage contact centre in Brisbane in the 2003 and 2004 financial years. Classified advertising is expected to continue to grow based on continuing population growth creating volume growth in real estate and employment. Around 50% of total display advertising revenue is generated outside of Queensland by

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Newsnet (national and retail advertising) although locally generated display advertising revenue is also driven by national advertising, which represents around 20% of total display revenue. Growth in display advertising revenue has been limited by the inability to satisfy advertiser demands for colour positions, which will be removed when The Courier-Mail is able to benefit from the colour upgrade of the printing presses from May 2005 (ie. towards the end of the 2005 financial year). The colour upgrade is also expected to generate additional revenue from classified advertising.

Growth in EBITDA in the year ending 30 June 2005 is expected to be in line with that achieved in prior years, reflecting continued growth in advertising revenue and cost containment (assisted by a 7% decline in newsprint costs). The 2005 financial year EBITDA does not reflect the impact of the colour press upgrade.

4.2.2

The Sunday Mail

The Sunday Mail is a weekly tabloid newspaper published on Sunday and distributed throughout Queensland, although approximately 50% of sales are in Brisbane. As with The Courier-Mail, five editions are published to cover the various regions of the state. It is the second highest selling newspaper in Australia (after News Corporation’s The Sunday Telegraph) and is the only Sunday newspaper servicing Queensland, although there is competition in south east Queensland from the Sydney Sunday papers and from Sunshine Coast Sunday published by APN News & Media Limited (“APN”). Sunshine Coast Sunday is distributed in the Sunshine Coast region (from Caboolture to Noosa) and has circulation of around 14,000 (this compares to The Sunday Mail’s Sunshine Coast circulation of around 43,000).

The Sunday Mail’s circulation and readership have grown since December 1999 as summarised in the following chart:

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Recent growth in circulation and readership has seen The Sunday Mail reach two milestones, circulation of 615,000 and readership of 1.5 million (representing readership penetration in Queensland of 50%), although readership has dropped slightly in the June 2004 survey. The Sunday Mail reaches more than 50% of the AB demographic, professionals and high income groups. Recent readership growth has been primarily amongst higher income groups and women. Growth in circulation has been achieved despite cover price increases from A$1.40 to A$1.60 over the period, as cover price increases have corresponded with product improvements. A further increase in cover price to A$1.70 has been implemented in August 2004 in conjunction with the launch of two new preprinted sections, a Queensland edition of ie (Inside Entertainment) and Homefront (real estate/home improvement editorial) which is expected to further boost circulation. Sales are primarily through newsagents/subagents, convenience stores and service stations, although there has been a considerable increase in sales through supermarkets since Sunday trading commenced in the 2003 financial year. Around 25% of sales are by subscription.

The Sunday Mail generates around 20% of Queensland Press’s revenue and EBITDA and also enjoys relatively high margins (although not as high as those achieved by The Courier-Mail). Circulation revenue represents a relatively large proportion of total revenue at around 40% and has grown in line with increases in circulation and cover price over the period. The Sunday Mail’s high penetration is attractive to advertisers as it offers them a wide audience. The majority of advertising revenue (around 75%) is display advertising with much of the balance (around 25%) represented by colour magazines and inserts. There is relatively little classified advertising in The Sunday Mail. As is the case with The Courier-Mail, around 50% of total display advertising revenue is generated by Newsnet, with local display advertising driven by national advertising (22% of total display advertising revenue) and retail (18% of total display advertising revenue). Display advertising is expected to benefit from the colour upgrade to the printing presses towards the end of the 2005 financial year.

Growth in EBITDA in the year ending 30 June 2005 is expected to be in line with that achieved in the 2004 financial year, reflecting growth in advertising and, in particular, circulation revenue. Costs are expected to be impacted by the partial printing of The Sunday Mail at Molendinar while the upgrade of the printing presses takes place. The 2005 financial year EBITDA does not reflect the impact of the colour press upgrade.

4.2.3

The Gold Coast Bulletin

The Gold Coast Bulletin is a daily tabloid newspaper published Monday to Saturday and is the only daily newspaper servicing the entire Gold Coast region, from Beenleigh in south east Queensland to Ballina in northern New South Wales (although its primary circulation area is from Sanctuary Cove to Kingscliff). In addition, more than 1,700 weekday and 4,000 weekend copies of The Gold Coast Bulletin are sold in Brisbane. The Gold Coast Bulletin is the second highest selling daily newspaper in Australia outside of the state capitals (after the Newcastle Herald) and is the second largest daily newspaper in Queensland (after The Courier-Mail). Its only daily print competition comes from APN’s Daily News, a tabloid newspaper published Monday to Saturday which is distributed in the Tweed Heads region and has an average daily circulation of around 5,000 (compared to The Gold Coast Bulletin’s average daily circulation of around 40,000). Competition from The Courier-Mail is minimal with less than 10% overlap on weekdays and around 20% on Saturdays.

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The Gold Coast Bulletin’s circulation since December 1999 and readership since December 2001 is summarised in the following chart:

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The Gold Coast Bulletin is one of the strongest growing newspapers in Australia. This is in part due to strong population growth in the Gold Coast region, which has grown at an average rate of 3.6% per annum for the last five years. With an estimated population of more than 450,000 at 30 June 2003¹⁷, the city of the Gold Coast is larger than Canberra and Hobart, making it the sixth largest city in Australia. Weekday circulation has grown by almost 4,500 copies (from 36,870 to 41,344) over the last four and a half years. Saturday circulation has increased by 11,500 copies (from 68,118 to 79,635) over the same period. Significant product enhancements and concentrated marketing efforts have enabled growth in circulation to be achieved despite cover price increases from A$0.70 to A$1.00 for the weekday edition and from A$1.20 to A$1.60 for the Saturday edition over the period. Subscribers represent around 25% of weekday sales and 20% of Saturday sales. Sales are predominantly through newsagents and subagents but convenience stores, supermarkets and service stations have been a growth area since their introduction in the 2003 financial year.

Weekday readership has generally been maintained in a band around 103,000-111,000 over the last two and a half years. The latest weekday readership figure of 107,000 represents 26% penetration of the Gold Coast region. Saturday readership of 178,000, representing 44% penetration of the Gold Coast region, has shown a considerable increase (in excess of 10%) over the last two and a half years. Readership of both the weekday and Saturday editions peaked in the December 2003 survey period at 121,000 and 186,000 respectively.

The Gold Coast Bulletin has consistently generated strong revenue and earnings growth and makes up around 15% of Queensland Press’s newspaper publishing revenue and EBITDA. The strong growth in performance of The Gold Coast Bulletin reflects:

high population growth, which has expanded the Gold Coast’s economic base and provided growth in demand for real estate; and

¹⁷	Source: Australian Bureau of Statistics, Regional Population Growth 2002-03, Catalogue Number: 3218.0.

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substantial government infrastructure and other business investment in the region.

Advertising revenue (which represents around 85% of total revenue) is approximately 60% display and 40% classified. Display advertising revenue is primarily real estate, which represents 40-45% of display revenue. Other significant contributors are national and retail advertising. Classified advertising revenue is driven by real estate (25-30% of classified revenue), employment (around 20% of classified revenue) and motor vehicles (around 15% of classified revenue). Expenses in recent years have increased in line with the increase in the level of business activity and growth in advertising volumes (with increases being mainly in staff costs and newsprint).

Growth in EBITDA in the year ending 30 June 2005 is expected to be more subdued than that achieved in prior years, although still relatively high compared to The Courier-Mail and The Sunday Mail. Growth in revenue is budgeted to fall to its lowest level in three years, primarily as a result of a decline in the rate of growth in advertising revenue, with advertising volumes being affected by a change in page size from 40 centimetres to 38 centimetres. However, both display and classified advertising revenues (ie. yields) are expected to benefit from the ability to offer increased colour for the full 2005 financial year. Margins are expected to increase considerably, reflecting the impact of the new printing press facility, which provides increased colour availability and a lower cost structure for the newspaper.

4.2.4

The Cairns Post

The Cairns Post is a daily tabloid newspaper published Monday to Saturday and distributed in the Cairns region. It is the leading newspaper in far north Queensland and Queensland’s third largest daily newspaper (after The Courier-Mail and The Gold Coast Bulletin). It has no daily local print competitor, but competes (to a greater extent than Queensland Press’s other major newspapers) with other local media including eight commercial radio stations, three commercial television stations and a number of tourism publications. There is also a small amount of print competition from The Australian and The Courier-Mail.

The Cairns Post’s circulation since December 1999 and readership since December 2001 is summarised in the following chart:

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The Cairns Post has an average daily circulation of 27,150 on weekdays and 44,688 on Saturdays. Weekday circulation has increased gradually over the last two years (although it has not reached the levels achieved in the late 1990s) and Saturday circulation is at an all time high. The weekday cover price has increased by 20 cents to A$1.00 and the Saturday cover price has increased by 30 cents to A$1.40 over this period. A further increase in the cover price of the Saturday edition to A$1.50 is planned for September 2004. Around 25% of weekday and 15% of Saturday sales are by subscription. Sales are primarily through newsagents and subagents.

After a period of decline in 2001 and 2002, readership of the weekday edition has increased in the last year, as a result of editorial enhancements as well as rising inbound tourism, Australian Airlines’ locating its operational base in Cairns and the development of the Cairns Esplanade (a recreational area on the Cairns foreshore), Marlin Coast (north of Cairns) and Port Douglas areas. The Cairns Post has a weekday readership of 86,000 (representing 38% penetration of the Cairns region). Saturday readership has also improved, although in the last two surveys (December 2003 and June 2004), Saturday readership has slipped below the lows of 2001 and 2002 to 105,000, although this still represents significant penetration (47%) of the Cairns region.

The revenue and EBITDA of The Cairns Post had been relatively flat in the financial years prior to 2003. The appointment of a new editor in June 2002 resulted in the newspaper being redesigned with the introduction of a number of new sections and increased depth of news coverage and revenue (in particular advertising revenue) and EBITDA improved. The Cairns Post generates around 5% of Queensland Press’s newspaper publishing revenue and EBITDA.

Advertising revenue (which represents around 75% of total revenue) is approximately 50% classified, 40% display and 10% other (represented primarily by colour magazines and inserts). Classified advertising revenue is primarily real estate. Around 40% of display advertising revenue is generated by local retailers, although this percentage has fallen from around 50% as a result of competition and increased discounting from other forms of media. Expenses have moved in line with revenue, being relatively flat prior to the 2003 financial year and then increasing as advertising volumes and revenue have increased.

Growth in EBITDA in the year ending 30 June 2005 is expected to be robust, reflecting ongoing benefits from the restructure of the newspaper as well as a strengthening economy resulting from greater government spending, increased tourism and population growth. The key strategic deliverables for the 2005 financial year are growth in home delivery sales, recovering lost market share in local retail advertising and strengthening ties with the community.

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4.3

Financial Performance

The historical financial performance of Queensland Press for the five years ended 30 June 2004 and the budgeted financial performance for the year ending 30 June 2005 are summarised below:


Queensland Press - Financial Performance (A$millions)
	Year ended 30 June										Year
	2000 actual		2001 actual		2002 actual		2003 actual		2004 actual		ending 30 June 2005 budget
Advertising	313.6		294.1		314.9		358.9		402.9		438.7
Circulation	86.6		86.9		90.7		94.9		95.7		101.6
Other	39.8		35.2		30.9		29.9		29.2		30.0

Newspaper publishing revenue	440.0		416.2		436.5		483.7		527.8		570.3
Newspaper publishing EBITDA	160.0		137.5		151.4		181.7		212.2		247.5
Depreciation and amortisation	(17.7	)	(16.7	)	(15.4	)	(17.4	)	(18.3	)	(23.0	)
Newspaper publishing EBIT	142.3		120.8		136.0		164.3		193.9		224.5
Net gain/(loss) on sale of non current assets	-		0.3		0.8		1.1		-
Dialect EBIT	-		(0.1	)	-		(9.7	)	(7.5	)
Dividend from News Corporation	20.3		20.3		20.6		20.7		20.7
Other investments	(1.1	)	(1.7	)	25.0		(18.4	)	(12.7	)
Significant items	-		-		-		(26.1	)	-
Net interest expense	(39.6	)	(47.0	)	(39.9	)	(35.0	)	(32.3	)

Operating profit before tax	121.9		92.6		142.5		96.9		162.1
Income tax expense	(29.6	)	(24.3	)	(42.1	)	(70.4	)	(53.6	)
Operating profit after tax	92.3		68.3		100.4		26.5		108.5
Outside equity interests	-		(0.1	)	(0.1	)	(0.1	)	(0.1	)
Profit after tax attributable to Queensland Press shareholders	92.3		68.2		100.3		26.4		108.4
*Statistics*
Newspaper publishing revenue growth	na		-5.4	%	4.9	%	10.8	%	9.1	%	8.0	%
Newspaper publishing EBITDA growth	na		-14.0	%	10.1	%	20.0	%	16.8	%	16.6	%
Newspaper publishing EBIT growth	na		-15.1	%	12.6	%	20.8	%	18.0	%	15.8	%
Newspaper publishing EBITDA margin	36.4	%	33.0	%	34.7	%	37.6	%	40.2	%	43.4	%
Newspaper publishing EBIT margin	32.3	%	29.0	%	31.2	%	34.0	%	36.7	%	39.4	%

Source:

Queensland Press statutory accounts, management accounts and budget

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Queensland Press’s newspaper publishing revenue and EBITDA have generally grown in line with the Australian advertising market cycle. Newspaper advertising expenditure in Australia generally reflects economic conditions. Advertising expenditure reached a peak in the 2000 financial year reflecting the strength of the national economy and substantial Federal government campaigns for changes to the tax system and the health insurance system. The strength of the national economy was evidenced by strong equity markets, particularly in the technology sector and strong property markets. The peak in 2000 was followed by a major downturn in advertising expenditure in the 2001 financial year reflecting weaker economic conditions including the impact of the introduction of the Goods and Services Tax on 1 July 2000, the decline in the technology market and softer advertising after the Sydney 2000 Olympic period. The weak economic conditions continued in the 2002 financial year as a result of the slowing global economy following the terrorist attacks of 11 September 2001, although Australia’s strong domestic economy more than offset the impact of these events on Australian newspaper advertising. Advertising expenditure rebounded in the 2003 financial year as economic conditions improved. Positive economic conditions have continued into the 2004 financial year, assisted by an increase in advertising expenditure associated with the Rugby World Cup.

Queensland Press’s total newspaper publishing revenue over the past five years has largely followed this trend as advertising revenue represents around 75% of Queensland Press’s total revenue. The 2000 financial year was a big news year, reflected in strong growth in both advertising and circulation revenue. It was also a 53 week year, rather than the standard 52 week year. The decline in total revenue in the 2001 financial year reflects Australian advertising expenditure generally during this period, although circulation revenue was able to be maintained. Advertising revenue returned to 2000 levels in the 2002 financial year reflecting the impact of the strong domestic economy and total revenue was further enhanced by an increase in circulation revenue as newspapers provided in depth news and analysis of events of national and international significance such as the September 11 terrorist attacks coupled with Queensland Press increasing the cover price of most of its major newspapers. Circulation revenue continued to grow in the 2003 financial year, bolstered by news events such as the Bali bombing, the war in Iraq and the SARS epidemic, but was relatively flat in the year ended 30 June 2004 as a result of a combination of 10 cent price increases for the Saturday editions of The Courier-Mail and The Gold Coast Bulletin and the weekday edition of The Cairns Post and a decline in circulation volumes at The Courier-Mail resulting from an absence of big stories during the period.

Queensland Press’s EBITDA has generally followed movements in revenue. The trend in EBITDA margins, in particular the increasing margins post the 2001 financial year, reflects the high operating leverage of newspaper publishing businesses. A high proportion of newspaper publishing costs are fixed or semi fixed in nature, resulting in a high proportion of each dollar of incremental revenue flowing straight to EBITDA. Staff and newsprint costs are the major expenses, representing more than 60% of total expenses (before depreciation) each year. Consequently, EBITDA grows (and declines) at a faster rate than revenue. The growth in EBITDA and lower EBITDA margins in the 2001 financial year were exacerbated by an increase in newsprint costs in that year, although the higher margins achieved in the 2000 financial year were impacted by 2000 being a 53 week year. The Courier-Mail, The Sunday Mail, The Gold Coast Bulletin and The Cairns Post together make up around 95% of EBITDA.

Queensland Press earns high margins compared to the margins earned by the newspaper publishing divisions of most other listed newspaper publishing companies. Its margins are most similar to those of West Australian Newspapers Holdings Limited (“WA Newspapers”), which has reported EBITDA margins in the range 34-39% over the last five years.

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Further growth in revenue and EBITDA has been budgeted by management of Queensland Press for the year ending 30 June 2005. The budget has been prepared on a very detailed “bottom-up” basis (ie. newspaper by newspaper). The major assumptions underlying the budget are:

the 2005 financial year is a 53 week year. The additional week is expected to generate incremental revenue of A$10.3 million and incremental EBIT of A$6.4 million;

inflation of 2.5%;

growth in advertising revenue of 8.9% which is lower than that achieved in the prior two years. Growth is expected to be achieved in both classified and display advertising through a combination of volume and rate increases. The main volume growth for classified advertising is expected to be in real estate and employment as a result of continued population growth while the driver of increased display volume is national advertising through Newsnet. The volumes and rates for classified advertising are also budgeted to benefit from a full year of additional colour capacity in The Gold Coast Bulletin;

growth in circulation revenue of 6.2% resulting from an increase in circulation of each of the major newspapers after a slight drop in circulation (of The Courier-Mail) in the 2004 financial year as well as 10 cent increases in the cover price of The Sunday Mail and the Saturday edition of The Cairns Post in 2004 (with no loss of sales);

a 7% decline in the cost per tonne of newsprint;

other expenses (ie. excluding newsprint and depreciation) are budgeted to increase by 4.8%.

The main cost increases are:

•

employee wages and salaries throughout the business resulting from an increase in non-award wages of 3% and an increase in the company contribution to superannuation, offset to some extent by a reduction in the total number of employees;

•

increased marketing costs associated with the launch of two new sections in The Sunday Mail and masthead support for The Courier-Mail; and

•

the impact of 20 weeks of back up production at Molendinar while the colour press upgrade takes place at Murarrie;

the A$4.7 million increase in depreciation reflects a full year of depreciation of the new printing press at Molendinar; and

the 2005 budget does not reflect the impact of the planned colour press upgrade in Brisbane.

The contribution from Dialect has been shown separately in the above analysis as it is not part of the newspaper publishing business of Queensland Newspapers, although the contribution from Dialect is included in Queensland Press’s operating activities in its statutory accounts. Queensland Newspaper’s 100% interest in Dialect was sold on 30 June 2004.

The overall financial performance of Queensland Press, particularly in the 2002 and 2003 financial years, has been impacted by the performance of its investments. Other investments in the above table represents investments other than Queensland Press’s investment in News Corporation (which has been shown separately). Other investments includes investment income (dividends received from AAP), investment management expenses, net gains and losses on the sale of other investments (including Dialect in the 2004 financial year) and write downs of other investments (which have amounted to more than A$100 million over the five year period).

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Significant items of A$26.1 million in the year ended 30 June 2003 represent a write off of A$10.0 million in the value of plant and equipment and a write off of A$16.1 million relating to Dialect software. These amounts were also included in Queensland Press’s operating activities in its statutory accounts.

The income tax expense in the year ended 30 June 2003 included A$31.0 million of future income tax expense written off or not brought to account in relation to that year.

Outside equity interests represent the 30% interest in the publisher of Port Douglas & Mossman Gazette.

4.4

Financial Position

The financial position of Queensland Press as at 30 June 2004 is summarised below:


Queensland Press - Financial Position (A$ millions)
	As at 30 June 2004 actual
Debtors and prepayments	91.7
Inventories	6.1
Creditors and accruals	(44.6	)
Net working capital	53.2
Property, plant and equipment	262.7
Investment in News Corporation (at cost)	1,619.2
Other investments	26.9
Intangible assets (publishing rights and titles)	410.6
Deferred tax liability (net)	(19.5	)
Tax provision	(19.8	)
Employee entitlements	(25.0	)
Other	(2.0	)
Total funds employed	2,306.3
Cash and deposits	26.6
Bank loans and finance lease liabilities	(570.0	)

Net borrowings	(543.4	)
Net assets	1,762.9
Outside equity interests	(0.4	)
Equity attributable to Queensland Press shareholders	1,762.5
*Statistics*
NTA per share	$120.80
Gearing	23.6	%

Source: Queensland Press

The financial position of Queensland Press is relatively straightforward. Its most significant asset is its investment in News Corporation, which represents around 70% of funds employed. Other investments (representing the retained investments) are largely immaterial at around 1% of funds employed as a result of write downs to date of around A$50 million (excluding the excluded investments other than the residential property in Sydney) which were sold on or before 30 June 2004.

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The total funds employed in the newspaper publishing business (ie. excluding the investment in News Corporation and other investments) is A$660.2 million (including A$410.6 million of intangible assets).

The investment in News Corporation is shown at cost. The market value of this investment at 30 June 2004 was A$5,768.2 million.

Publishing rights and titles are stated at deemed cost and are not amortised on the basis that the Directors consider the life of the publishing rights and titles to be indefinite.

5	Value Analysis of Queensland Press

5.1

Summary

For the purposes of the Proposal, the business operations of Queensland Press have been valued as follows:


Queensland Press – Agreed Value for Purposes of Proposal
A$ millions
Agreed value of newspaper publishing business	2,950.0
Estimated net borrowings at completion	(487.9	)
Agreed value of retained investments	21.5
Net value of Queensland Press (excluding investment in News Corporation)	2,483.6

Source: News Corporation

The value excludes Queensland Press’s investment in News Corporation. In addition, a number of Queensland Press’s investments, the excluded investments, have been sold and the cash proceeds received (or to be received) in relation to these sales have been applied to reduce estimated net borrowings at completion.

The agreed value of the newspaper publishing business of Queensland Press for the purposes of the Proposal is A$2.95 billion. Grant Samuel has assessed the appropriateness of this value by reference to:

capitalisation of earnings or cash flows (implied multiples of EBITDA and EBITA); and

discounted cash flow analysis.

Grant Samuel also considered other parameters that can be used to benchmark value such as revenue multiples.

The value of A$2.95 billion represents multiples of 11.8 times adjusted forecast EBITDA and 13.0 times adjusted forecast EBITA. Grant Samuel considers that these multiples are warranted for acquisition of a controlling interest in Queensland Press in view of the particular attributes of Queensland Press’s newspaper publishing business and the available evidence on multiples implied from acquisitions of comparable companies and by the share prices of comparable listed companies.

The assessment of the multiples implied by the agreed value of A$2.95 billion is discussed in detail in Section 5.3 of this report.

The agreed value of A$2.95 billion is also broadly consistent with the results of a discounted cash flow analysis. The discounted cash flow analysis considered a number of different scenarios

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including the company’s own forecasts to 2010 and long term growth rates for revenue and expenses for the 2011 to 2014 years estimated by Grant Samuel as well as alternative assumptions derived by Grant Samuel including:

a range of discount rates and perpetual growth rates;

changes to advertising and circulation revenue assumptions over the forecast period;

changes to newsprint costs over the forecast period; and

changes to the long term growth rate assumptions for revenue and expenses for the 2011 to 2014 years.

The discounted cash flow analysis is discussed in detail in Section 5.4 of this report.

Grant Samuel has placed greater weight on the assessment of the earnings multiples implied by the agreed acquisition price than the discounted cash flow analysis in forming its conclusion. This approach is considered appropriate as earnings multiples:

provide a more market based assessment of value in situations where there is a substantive body of comparable evidence;

are the most common benchmarks used by analysts and acquirers in valuing newspaper publishing businesses; and

for mature, steady state, relatively simple businesses with only a few key drivers, are just as capable of capturing the growth patterns and risk profile of the business as the more sophisticated discounted cash flow analysis.

Discounted cash flow analysis is more useful for businesses that have changing growth profiles in the medium to long term, lumpy cash flows or limited lives.

5.2

Methodology

5.2.1

Overview

The most reliable evidence as to the value of a business is the price at which the business or a comparable business has been bought and sold in an arm’s length transaction. In the absence of direct market evidence of value, estimates of value are made using methodologies that infer value from other available evidence. There are four primary valuation methodologies that are commonly used for valuing businesses:

capitalisation of earnings or cash flows;

discounting of projected cash flows;

industry rules of thumb; and

estimation of the aggregate proceeds from an orderly realisation of assets.

Each of these valuation methodologies has application in different circumstances. The primary criterion for determining which methodology is appropriate is the actual practice adopted by purchasers of the type of business involved.

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Capitalisation of earnings or cash flows is the most commonly used method for valuation of industrial businesses. This methodology is most appropriate for industrial businesses with a substantial operating history and a consistent earnings trend that is sufficiently stable to be indicative of ongoing earnings potential. This methodology is not particularly suitable for start-up businesses, businesses with an erratic earnings pattern or businesses that have unusual capital expenditure requirements. This methodology involves capitalising the earnings or cash flows of a business at a multiple that reflects the risks of the business and the stream of income that it generates. These multiples can be applied to a number of different earnings or cash flow measures including EBITDA, EBITA, EBIT or net profit after tax. These are referred to respectively as EBITDA multiples, EBITA multiples, EBIT multiples and price earnings multiples. Price earnings multiples are commonly used in the context of the sharemarket. EBITDA, EBITA and EBIT multiples are more commonly used in valuing whole businesses for acquisition purposes where gearing is in the control of the acquirer.

Where an ongoing business with relatively stable and predictable cash flows is being valued, Grant Samuel uses capitalised earnings or operating cash flows as a primary reference point.

Application of this valuation methodology involves:

estimation of earnings or cash flow levels that a purchaser would utilise for valuation purposes having regard to historical and forecast operating results, non-recurring items of income and expenditure and known factors likely to impact on operating performance; and

consideration of an appropriate capitalisation multiple having regard to the market rating of comparable businesses, the extent and nature of competition, the time period of earnings used, the quality of earnings, growth prospects and relative business risk.

The choice between EBITDA, EBITA and EBIT is usually not critical and should give a similar result. All are commonly used in the valuation of industrial businesses. EBITDA can be preferable if depreciation or non-cash charges distort earnings or make comparisons between companies difficult. EBITA avoids the distortions of goodwill amortisation.

In assessing the appropriateness of the agreed value for Queensland Press’s newspaper publishing business, Grant Samuel has placed particular reliance on the EBITDA and EBITA multiples implied by the agreed value compared to the EBITDA and EBITA multiples derived from an analysis of comparable listed companies and transactions involving comparable businesses.

Discounting of projected cash flows has a strong theoretical basis. It is the most commonly used method for valuation in a number of industries, including mining, and for the valuation of start-up projects where earnings during the first few years can be negative. Discounted cash flow valuations involve calculating the net present value of projected cash flows. The cash flows are discounted using a discount rate which reflects the risk associated with the cash flow stream. Considerable judgement is required in estimating future cash flows and the valuer generally places great reliance on medium to long term projections prepared by management. In addition, even where cash flow forecasts are available for up to, say, ten years, the terminal or continuing value is usually a high proportion of value. Accordingly, the multiple used in assessing this terminal value becomes the critical determinant in the valuation (ie. it is a “de facto” cash flow capitalisation valuation). The net present value is typically extremely sensitive to relatively small changes in underlying assumptions, few of which are capable of being predicted with accuracy, particularly beyond the first two or three years. The arbitrary

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assumptions that need to be made and the width of any value range mean the results are often not meaningful or reliable. Notwithstanding these limitations, discounted cash flow valuations are commonly used in valuing industrial companies and can at least play a role in providing a check on alternative methodologies, not least because explicit and relatively detailed assumptions as to expected future performance need to be made. Grant Samuel has therefore also considered a discounted cash flow analysis prepared for Queensland Press’s newspaper publishing business operations.

Industry rules of thumb are commonly used in some industries. These are generally used by a valuer as a “cross check” of the result determined by a capitalised earnings valuation or by discounting cash flows. While they are only used as a cross check in most cases, industry rules of thumb can be the primary basis on which buyers determine prices in some industries. In the case of newspapers, multiples of revenue are most commonly used as a rule of thumb check on value. However, it should be recognised that rules of thumb are usually relatively crude and prone to misinterpretation.

Valuations based on an estimate of the aggregate proceeds from an orderly realisation of assets are commonly applied to businesses that are not going concerns. They effectively reflect liquidation values and typically attribute no value to any goodwill associated with ongoing trading. Such an approach is not appropriate in Queensland Press’s case.

5.2.2

Capitalisation Multiples

Determination of the appropriate earnings multiple is usually the most judgemental element of a valuation. Definitive or even indicative offers for a particular asset or business can provide the most reliable support for selection of an appropriate earnings multiple. In the absence of meaningful offers it is necessary to infer the appropriate multiple from other evidence.

The primary approach is to determine the multiple that other buyers have been prepared to pay for similar businesses in the recent past. However, each transaction will be the product of a unique combination of factors, including:

economic factors (eg. economic growth, inflation, interest rates) affecting the markets in which the company operates;

strategic attractions of the business - its particular strengths and weaknesses, market position of the business, strength of competition and barriers to entry;

rationalisation or synergy benefits available to the acquirer;

the structural and regulatory framework;

investment and sharemarket conditions at the time; and

the number of competing buyers for a business.

A pattern may