News Corp shareholder rallies support to weaken Murdoch grip

Alarm bells are ringing once again in Murdoch land with yet another attempt launched to weaken the Murdoch family’s grip on its publishing empire, News Corporation.

On the face of it, the shareholder mounting the action – hedge fund Starboard Value – doesn’t trust the competence of Rupert Murdoch’s children to run the business properly after he’s gone. And with the two-week trial to decide who gets to control the global media empire also kicking off this week, it’s hard not to revisit the parallels between the HBO series Succession and the real-life Murdoch family drama.

Rupert Murdoch with sons Lachlan and James in 2002.Credit: Bloomberg

This isn’t the first time shareholders, governance experts, or academics have criticised Murdoch’s disproportionate ownership of News Corp and its corporate sibling Fox; indeed, over the years, it has become something of a sport.

The way it works is that Murdoch owns 14 per cent of News Corp’s non-voting shares but 40 per cent of its voting shares. So the media mogul has outsized control of the company relative to its economic interest. This is called a dual-class voting structure, and it is a mighty effective way of entrenching control.

The minority shareholders hate this architecture but renovating it involves a shareholder vote and – you guessed it – because Murdoch has tied up almost half the voting shares, it is near impossible for the remaining shareholders to abolish this asymmetric power structure.

The instability created by the succession stoush between the Murdoch siblings has offered Starboard a chance to shake the tree and stir fellow shareholders into action.

So, for Starboard to get its wish, it would need almost every non-Murdoch-affiliated shareholder to actually vote, and vote against the Murdochs. The previous attempt to collapse the existing ownership structure was made about 10 years ago. It narrowly failed after 90 per cent of independent shareholders voted in favour of abandoning the dual listing, but this represented only 49.5 per cent of the voting share.

While the dual structure is antithetical to shareholder democracy, News Corp shareholders have accepted it for years simply because of their unshakeable belief in the visionary business acumen of Rupert Murdoch – who resigned from active management last year and now holds only a titular role of chairman emeritus.

Rupert Murdoch and then wife Anna Murdoch with their children Lachlan, James and Elisabeth in New York City in 1989.

That said, while the 93-year-old remains alive and cognisant, shareholders expect him to keep making the calls on all the big decisions at the business. It’s what happens once Rupert is out of the picture that’s making some shareholders restless, with few willing to put the heir apparent – Lachlan Murdoch – in the same league as his father.

Starboard says complicated family dynamics that have emerged as power moves from the visionary father to his children has the potential to impact the stability and strategic direction of News Corp. Murdoch is attempting to ensure his eldest son, Lachlan, has more control over the future of his businesses by securing him greater voting power compared to his siblings – a move that is being legally contested by three of Murdoch senior’s children – Elisabeth, Prudence and James.

“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,” Starboard said in a letter to News Corp shareholders.

The instability created by the succession stoush between the Murdoch siblings has offered Starboard a chance to shake the tree and stir fellow shareholders into action.

But the hedge fund’s actions are probably less motivated by championing the cause of shareholder democracy and all to do with making a profit through a partial break up of News Corp.

For example, there has been a conga line of investors keen to demerge the Australian real estate business REA from the News Corp mothership, where the property portal’s true value is hidden by the company’s lesser-performing publishing assets.

Last year, News Corp shareholders mounted a feisty rearguard action that halted Murdoch’s plan to merge News Corp and Fox Corp. The action was successful because the Murdoch family couldn’t use its outsized voting control.

Starboard won’t have much trouble garnering support from fellow nonaligned shareholders in its latest quest. If shareholder activists are unsuccessful in this battle, the campaign won’t disappear. And the hedge fund reckons that even if shareholders can’t get this vote across the line, a near miss will put enough pressure on the News Corp board to begin talks.

When viewed through the lens of maximising shareholder value, News Corp is vulnerable because its share price doesn’t reflect the true worth of some of its assets. And the company was quick out of the blocks this week to defend the status quo, saying 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”.

So, any idea of negotiation with News Corp is just wishful thinking on Starboard’s part because ceding family control of the empire would be an existential crisis for the Murdochs, particularly Lachlan. They won’t budge without a fight.

Starboard reckons it has a Plan B – but isn’t prepared to share in detail what that might be.

It will have to be a good one because it doesn’t sound like Rupert or Lachlan Murdoch are in the mood for haggling.

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