News Corp has acknowledged receipt of a letter from the activist shareholder group, Starboard Value, but immediately rejected its claims that the company’s current control structure—dominated by the Murdoch family via a voting/non-voting share structure—is problematic.
Starboard Value’s stance on the voting/non-voting share structure and the control it grants the Murdochs emerged on Sunday after a leaked letter to News Corp. This gained significant attention on Monday, particularly with an upcoming court hearing in Reno, Nevada, concerning Rupert Murdoch’s proposed changes to the controlling Murdoch Family Trust. The changes would benefit his son Lachlan and exclude his other children, James, Prudence, and Elisabeth, from having any role after his death.
The Murdoch Family Trust controls News Corp (and the associated Fox Corp) through a 40% stake in the voting class of shares in News Corp and 43% in Fox. However, when both classes of shares are considered, the Murdochs only hold a 14% stake overall.
Starboard Value owns 4.6% of the voting shares in News Corp and 3.7% of the non-voting shares. Starboard is seeking a vote at the annual meeting in November to merge the two classes of stock. This is the latest in a series of similar attempts to change the voting structure, all of which have previously failed due to opposition from the Murdoch Family Trust.
The statement from Starboard on Monday prompted News Corp to issue a public response. Typically, the company remains silent on control matters, only sharing its views in the annual proxy statement that US companies issue before their annual meetings.
News Corp’s board insisted on Monday that the dual-class capital structure promotes stability and “has facilitated the successful implementation of News Corp’s transformational strategy and long-term outperformance for all News Corp stockholders.”
“The company has thrived under the current structure and guidance of the board and senior leadership, despite major changes in consumer behaviour amidst the digital revolution of the last decade,” and the stock has outperformed many of its peers.
News Corp is currently undergoing what could become a significant restructuring. After failing last year to sell its 80% stake in the US-based Move property listings business to a smaller competitor (and cancelling merger talks with Fox the year before), News Corp is now considering selling its 65% stake in the Australian pay-TV business, Foxtel.
Additionally, REA Group, its 61%-owned Australian real estate listings business (and a 20% shareholder in Move), is evaluating whether to make a costly takeover offer for UK listing group Rightmove. The terms of this deal haven’t been made public, but it could be worth billions of dollars and may result in News Corp giving up majority control through a potential capital raising.
With a control premium, Rightmove would cost upwards of A$11 billion, based on its current value of A$10.2 billion. REA is worth just over A$26 billion but has limited cash reserves compared to the potential cost. As such, a share issue or a share-based offer would likely be required, which could dilute News Corp’s stake and reduce its control over REA.
In its letter, Starboard’s managing member, Jeffrey Smith, stated that the problem lies in the potential disagreement between James, Elisabeth, Prudence, and Lachlan Murdoch—Lachlan being the sole chair of News Corp and CEO of Fox—on how to run the family business. This uncertainty “represents a risk to shareholders,” Starboard said in the letter.
Starboard further argued that the super-voting stock, which allows the family to control News Corp with a relatively small economic stake, is not in the best interests of average shareholders and should not be transferred.
“This transition of power from Rupert Murdoch to his children has introduced complicated family dynamics that could potentially impact the stability and strategic direction of News Corp. While we can understand how some might see a benefit to a visionary founder retaining outsized control for a limited time, that potential justification disappears when super-voting power and the associated protections are passed on to others,” the letter stated.
“The four Murdoch siblings with voting rights within the Trust are reported to have widely differing worldviews, which collectively could paralyse the strategic direction of the company. More importantly, we question why their perspectives should carry greater weight than those of other shareholders.”
“We have submitted this proposal to give shareholders the opportunity to stand up for their rights and communicate to the board that the time for News Corp’s dual-class share structure has long passed.”