Not swallowing pill

News Corp. shareholders withhold votes

Disgruntled shareholders withheld about 15% of their votes for a slate of News Corp. directors in protest over a “poison pill” provision enacted to prevent a hostile takeover by cable dealmaker John Malone.

In the company’s first annual meeting held in the U.S., News Corp. chairman Rupert Murdoch faced down questions from shareholder activists and from a group that has filed suit accusing Murdoch of breaking a promise to put the poison pill provision to a vote if he extended it beyond a year.

“The whole point is the protection of small shareholders from someone coming in and taking over the company at depressed prices,” Murdoch said.

Malone accumulated 18% of the company’s voting shares late last year, causing Murdoch to adopt the provision to make it prohibitively expensive to try a hostile takeover of the company. Trusts controlled by the Murdoch family own a controlling 30% stake.

“We didn’t like a conglom creeping up on us and getting significant leverage. We felt it was important that if they want to do that they had better buy the whole company,” said Murdoch, who characterized the talks with Malone as “friendly” but gave no timetable for a resolution of the issue.

Malone voted his shares in favor of the directors standing for election, helping to re-elect News Corp. chief operating officer Peter Chernin, DirecTV Group chief executive Chase Carey, British Airways chief exec Rod Eddington and Andrew Knight, director of the Rothschild Investment Trust, to three-year terms.

But as one critic pointed out, if the poison pill was put to a shareholder vote, Malone could withhold his voting stake, making it that much tougher to enact the provision.

A representative of the Australian, U.S. and European shareholders suing the company over the poison pill said shareholders may well have approved the measure if it had been put to a vote.

“Our objection is not to the poison pill itself but to the board’s complete disregard to its agreement to let the shareholders decide whether or not to extend the pill,” said Andrew Clearfield, president of Investment Initiatives, a corporate governance consultancy. “This is a fundamental issue of trust between the board and shareholders.”

Murdoch characterized the group as a small minority. “There has been no great outcry,” he said, noting that only one call out of hundreds into the News Corp. investor relations office had raised the issue.

At the heart of shareholder concerns is News Corp.’s depressed share price: Stock is trading at around $15 a share, about half the value of its peak in 2000 during the Internet boom.

Murdoch touted the company’s record performance by every other financial measure, as well as initiatives to return value to shareholders. The company has bought back $1 billion of its own stock in the last four months and increased its dividend payout.

Among the company’s priority initiatives for the coming year are to integrate its recent Internet acquisitions and to launch a business news cable channel to take on CNBC.

Murdoch has spent $1.5 billion on Internet acquisitions over the last few months out of $2 billion budgeted to convert the company into an Internet powerhouse able to distribute TV, film and other entertainment digitally.

Murdoch said the company is still weighing the purchase of a search engine to complete the portfolio.

“We could acquire a search technology tomorrow, but that is not necessarily the right way to go, and we have not made up our mind,” he said.

Chernin said the company is in negotiations with cable and satellite operators to get a channel position for a Fox-branded business web, which they hope to launch next year. Negotiations for the net may well be tied to new affiliate deals for Fox News Channel, many of which expire next year and which Murdoch expects to renew “at significantly higher prices.”

Murdoch spent the morning on the dais with son Lachlan, who left his executive position in the company in July but remains on the board.

Succession at the company, an issue often on the minds of shareholders, is not on Murdoch’s agenda.

“With great respect to everyone here, I don’t want to quit,” he said.

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