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Is Murdoch’s move on APN News and Media Limited a buy signal for investors?

What: Two previous cornerstone investors in radio and regional newspaper publisher APN News and Media Limited (ASX: APN) yesterday sold a combined 30.8% stake in the media group via a block trade conducted at 88 cents per share. Interestingly, their move has paved the way for Rupert Murdoch’s News Corp (ASX: NWS) to amass a 14.99% holding.

So what: In a release to the market announcing its stake, News Corp stated:

“APN has a high quality portfolio of Australian and New Zealand radio and outdoor media assets and small regional print interests. It is led by a quality management team that has successfully driven improvements in the performance of the business.”

While News Corp may have noted some positives about APN it is unlikely that this 14.99% holding represents the end game for Murdoch. Given the ongoing headwinds facing newspaper publishing its likely he either has his eye on the synergies which could flow from a merger of the two companies’ publishing assets or perhaps he has ambitions to diversify into radio, which is a medium that remains popular with advertisers given its mass market penetration.

Now what: Whatever Murdoch’s plans are, the one thing that is for sure is that he now has a firm seat at APN’s table. That’s more than can be said for his interest in Ten Network Holdings Limited (ASX: TEN) where Foxtel – owned jointly by News Corp and Telstra Corporation Ltd (ASX: TLS) – has lobbed a low-ball offer for the television network in what is becoming a drawn out process.

Unlike the Ten situation which remains very up-in-the-air, News Corp’s 14.99% position in APN suggests the media giant is in a commanding position.

With APN earning 7.6 cents per share (pre-exceptional items) for the year ending 31 December 2014, Murdoch has just paid a price-to-earnings ratio of 11.6x. That doesn’t look too bad if APN’s earnings have bottomed and when you consider the synergies News Corp could potentially extract from acquiring certain APN assets.

For investors who are considering following Murdoch into APN by purchasing stock today, it is important to remember that basing an investment case solely on the hope of a takeover offer is a risky bet. A better premise for investment would be if you were happy that the underlying investment case stacked up on its own merits, with the possibility of a corporate action viewed as icing on the cake.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned.

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