Murdoch Quoted at Valassis Trial: "Now You Have to Really Go After Them"

Last Updated Jun 17, 2009 2:39 PM EDT

Rupert Murdoch urged his CEO at News America Marketing to "really go after them" when they learned that Valassis' stock had declined after the company lost market share, a Michigan state court heard.

In its anti-competition case against News America Marketing, Valassis has frequently tried to portray the News Corp. agency as being run by a ruthless "boss of all bosses," Murdoch. (BNET's coverage of the trial is several days old due to this.)

But it was News America who introduced the quote that bears out Valassis' picture of Murdoch. It came as News America was cross-examining Tom Leprine, News America's vp/business operations, who had repeatedly admitted on the stand that he threatened clients with higher prices if they gave business to Valassis, and that News America used its supermarket advertising monopoly to subsidize its newspaper coupon efforts.

News America lawyer Kenneth Klein played a sales speech given by News America CEO Paul "I will destroy you!" Carlucci, in which he talked about how good he felt that Valassis' stock was declining because it was losing market share to News America:

Yesterday they announced their earnings would be off by 19 percent for the next year. Their stock dropped by $9, that's 26 percent due to the market share loss.

I trust they will be coming out of this at full force, but for days it's like winning the playoffs before you get to the world series. You feel pretty good. And now we want to win the series.

Last night Mr. Murdoch was saying now you have to really go after them.

Carlucci, on video, also described why he thought Valassis lost share. It was because its management were focused on their own compensation, which was linked to their stock price, he said. In order to keep the stock -- and their compensation -- high, they had to keep earnings high, which meant they could not lower prices to compete with News America:
So all they have to do is by hook or crook get the stock price from 30 to 40, then they have the cash in. And that's why I think it's relatively the reason they did not fight back as aggressively and certainly they are capable of. They wanted to protect their earnings, they were in it for the short term. The cost of competing in the in-store arena would bite into their profit for years.
Carlucci's spectral appearance came after Leprine admitted, again, to Valassis lawyers that News America clients paid millions of dollars in extra billings either because they declined News America's bundled supermarket/newspaper deals or because they gave business to Valassis. Reckitt Benckiser was one client apparently charged $30 million extra, Leprine testified. S.C. Johnson was charged 35 to 40 percent extra, and Novartis was charged $4.5 million extra.

But it was Sara Lee, again, who proved to be the client that most aggressively challenged News America's pricing policy. Sara Lee wanted to split its advertising dollars between Valassis and News America, and so the latter charged the company $1.2 million extra. A Valassis lawyer read an internal News America memo which described the reaction of Sara Lee exec Debra Lucidi to the development. It said:

However, they continue to tell us things like we are cornering them, holding a gun to their head, blackmailing them, et cetera.
To match News America's prices, Valassis had to pay Sara Lee about $1.2 million to keep its share of newspaper coupon business, and that money went to News America to cover its supermarket rate increase, the court heard. Leprine said he did not have knowledge of Valassis' side of that deal.

To moderate the damage that Valassis did with Leprine's testimony, News America's lawyers asked Leprine to list the clients that his agency had lost despite its alleged monopoly practices. Coca-Cola, Unilever, Johnson & Johnson and Procter & Gamble were among them, Leprine said. In fact, he noted:

Procter & Gamble pays the lowest rates of anybody.
That's a fact which will surprise nobody in the business, and will no doubt annoy all its competitors anyway.