Exclusive-Starboard bids for News Corp, tries to break Murdoch stranglehold By Reuters

By Svea Herbst-Bayliss

NEW YORK (Reuters) – Hedge fund Starboard Value has filed a shareholder resolution to eliminate dual-class shares that allow Rupert Murdoch to control News Corp (NASDAQ: ), publisher of the Wall Street Journal, according to people familiar with the matter.

Starboard’s move comes as the 93-year-old media mogul is locked in a legal dispute with some of his children to try to ensure his son Lachlan Murdoch will control News Corp and broadcasting giant Fox Corp after his death saddle.

The Starboard resolution would not be binding on News Corp, and the company could try to stop it from being voted on at its next annual shareholder meeting.

Still, the move represents a direct challenge to Murdoch’s hold on the media conglomerate. While he has overcome such challenges in the past, it is the first he has faced since stepping down from an active role in the company, stepping down as chairman of the board last year.

Starboard in October asked News Corp to spin off its digital real estate unit to unlock shareholder value, days after Reuters first reported that the activist investor had amassed a stake in the company.

Now Starboard has privately filed a shareholder resolution calling for the abolition of News Corp’s two-class share structure, which gives Murdoch 40 percent of the company’s voting shares despite holding a stake of about 14 %, the sources said.

Starboard Value, led by Jeffrey Smith, is one of the world’s leading activist investors and has recently pushed for changes at firms including online dating company Match Group (NASDAQ: ), design software maker Autodesk (NASDAQ: and business software. vendor Salesforce (NYSE:).

As of June 30, Starboard owned 7.2 million Class A shares of News Corp, equivalent to a 1.9 percent stake, as well as 8.7 million Class B shares, according to a regulatory filing.

The sources requested anonymity because the matter is confidential. News Corp did not respond to requests for comment. Tribord could not be reached for comment.

Since launching News Corp in 1980 as the holding company for his media empire, Murdoch has maintained a tight grip on the company’s governance.

Companies are not required to take into account the outcome of shareholder resolutions, although many do if they attract a large number of votes.

“A company’s failure to act on a shareholder proposal that is approved or receives strong support can result in damage to the company’s reputation and could signal to shareholders and proxy advisory firms that the board is not responding to an issue of concern significant of the shareholders.” Law firm Covington & Burling said in a note to clients last year.

Murdoch has ignored such votes in the past, including for much of the past decade, even when they were supported by two-thirds of voting shareholders unrelated to him or his family.

It would be the first vote, however, since Lachlan Murdoch replaced his father as chairman of News Corp. News Corp should argue that it is in the interests of shareholders that the Murdoch family continue to control the company even if its founder is no longer involved.

It is not clear whether News Corp will ask the US Securities and Exchange Commission to exclude the Starboard proposal from the agenda of its annual shareholder meeting, which is expected to be held in the fall.

Companies asked the SEC to exclude about half of the shareholder proposals they received in the last proxy season, and the SEC granted more than two-thirds of those requests, according to law firm Skadden, Arps, Slate, Meagher & Flom. The SEC can overturn a shareholder proposal if it agrees with a company that it will micromanage it or cause it to break the law.

THE RESISTANCE OF RUSSIA

News Corp is valued at about $15.3 billion, and its stock price has climbed 25.5% over the past 52 weeks. The company owns a property listings business, book publisher Harper Collins and a number of newspapers including the Wall Street Journal, New York Post, Britain’s Times, Sunday Times and Sun and The Australian.

Murdoch’s other big media property, Fox News, is owned separately from Fox Corp since the publishing and broadcasting assets were split into separate companies in 2013.

Starboard argued that News Corp was trading at a discount to the value of its assets and should consider spinning off some of them. He said the company could unlock more than $7 billion in value by spinning off Wall Street Journal publisher Dow Jones from its real estate division.

News Corp, however, has resisted such calls. Earlier this year, it reported fourth-quarter revenue and profit that beat Wall Street estimates, driven by the strength of its Dow Jones unit and strong performance in its real estate listing and book publishing businesses.

Last year, Murdoch dropped a proposal to merge News Corp with Fox Corp after several top shareholders voiced opposition to the move. The merger would have required the support of the majority of shareholders, except for Murdoch.