Activist investor Starboard Value LP took aim Rupert Murdoch in a Monday letter arguing that the legal uncertainty surrounding the 93-year-old media mogul’s succession poses a risk to the stability and strategic direction of News Corp.
“The Murdoch family’s ownership in News Corp is managed by the Murdoch Family Trust (the “Trust”), which is reportedly controlled by Rupert Murdoch and four of his children,” Starboard CEO Jeff Smith wrote. “Recent press reports have described a legal battle over ongoing control of the Trust, with Rupert and Lachlan Murdoch on one side, and three of Rupert Murdoch’s other children on the other side. We believe, and reports have highlighted, that one of the root causes for the conflict is disagreement over the future strategic direction of News Corp and Fox Corporation.
“This uncertainty represents a risk to shareholders that is only amplified by the Murdoch family’s super-voting shares and the poor governance and oversight that stems from the dual-class share structure.”
The Murdoch family currently holds an economic ownership of approximately 14% in News Corp and controls 41% of its voting shares. At the company’s annual meeting last year, Rupert transitioned to Chairman Emeritus and his son, Lachlan Murdoch, became the sole Chair of News Corp.
“While we can understand how some could see a benefit to a visionary founder retaining outsized control for a limited duration of time, that potential understanding vanishes as super-voting power and the associated protections transition to others,” Smith argued. “There are no reasonable arguments to extend super-voting rights and de facto control to the inheritors of a founder.”
“The situation at News Corp is a textbook example of one of the worst forms of a dual-class share structure – one that extends beyond any reasonable timeline and one in which super-voting rights are moving from a visionary founder to the founder’s children. The four Murdoch siblings with voting rights within the Trust are reported to have widely differing worldviews, which, collectively, could be paralyzing to the strategic direction of the Company; more importantly, we are not sure why their perspectives should carry greater weight than the views of other shareholders,” he continued. “This is clearly not the appropriate governance structure for a public company, and we believe it has exacerbated News Corp’s valuation discount relative to its inherent value.”
The hedge fund has called for an elimination of News Corp.’s dual class share structure arguing that it is not in the best interest of the company’s shareholders nor reflective of best-in-class corporate governance practices.
A proposal has been submitted for consideration at News Corp’s upcoming annual meeting of shareholders, which the firm says will give investors the “opportunity to stand up for their rights and to communicate to the Board that the time for News Corp’s dual-class share structure has long passed.” More details will be unveiled in a proxy submitted in the coming weeks.
“Shareholders do have a choice and will have an opportunity to make their voices heard – there is a path to achieve majority support for this proposal,” Smith said. “We believe majority support for this proposal will send a clear and direct message to the Board to eliminate the dual-class share structure. If the Board refuses to listen, we can then take further action.”
In a statement, News Corp. said that its board believes the dual-class capital structure “promotes stability” and the company has “thrived under the current structure and guidance of the Board and senior leadership despite major changes in consumer behavior amidst the digital revolution of the last decade.”
“During this time, the Company has transformed its revenue and earnings base due to organic digital reinvestment, strategic acquisitions and divestments and on-going cost management initiatives that have delivered record profitability and significant value creation for stockholders,” the statement continued. “With the Board’s long-term vision and support, News Corp has struck landmark, multi-year content licensing deals with major technology platforms, creating new revenue streams and additional growth levers including a significant step to prepare the Company to prosper in the AI age. And over the last five years, News Corp’s stock price has materially outperformed both the S&P 500 and its peer group.”
Shares of News Corp are up 83% in the past five years, 27% in the past year and 9.7% year to date.
