News Corp. shareholders are finding Rupert Murdoch’s poison pill a tough one to swallow.
A group of international institutional shareholders are suing the conglom and its officers, alleging the company broke a promise that it would not extend a “poison pill” provision beyond 12 months without shareholder approval.
Rupert Murdoch extended the poison pill, designed to thwart a takeover attempt, after negotiations with media investor John Malone broke down over the 18% stake Malone had accumulated in the company.
Murdoch announced Aug. 11 that he was extending the provision for another two years after it was set to expire Nov. 8.
The Murdoch family controls 30% of the conglom’s equity through supervoting shares but adopted what it called a “shareholders’ rights” provision to keep Malone from accumulating a controlling stake in the company.
A News Corp. spokeswoman said the company had reviewed the complaint, filed in Delaware, and found it to be “meritless, baseless and frivolous.”
The shareholder group, which includes a host of U.S., U.K. and Australian pension funds, claims Murdoch had promised the poison pill would not be renewed without shareholder approval as a condition of their support for moving the company from Australia to the U.S.
“This case is about a promise broken, plain and simple,” said Stuart Grant, lead counsel for the investor group.
“The officers and directors of News Corp. made a pledge to shareholders that if they gave up the substantial protections of Australian corporate law for the risks inherent in being shareholders of a Delaware corporation, the company would not adopt a poison pill plan lasting more than a year without express shareholder approval,” said Grant, whose firm, Grant & Eisenhofer, took on Global Crossing, Tyco, Parmalat and Marsh & McLennan.
News Corp. execs declined to comment on the specifics of the suit. Also named in the suit are Rupert Murdoch and son Lachlan, DirecTV topper Chase Carey, prexy Peter Chernin, chief financial officer David R. Devoe, Murdoch adviser Arthur M. Suskind and other directors.
Australian laws are much more favorable to shareholders in terms of replacing board members and management, the shareholders claim.
A key negotiating point in the effort to reincorporate in the U.S. was that Murdoch promised to seek shareholder approval to authorize a poison pill for longer than 12 months.
Shareholders complain the takeover defense reduces transparency in governance of the company, which was a major fear for international shareholders when News Corp. began its campaign to move to the U.S.
But Murdoch’s pledge to investors was made before Malone began buying up shares late last year.
“News Corp.’s explanation, that it changed its policy because circumstances have changed, is unacceptable,” said Michael O’Sullivan, president of the Australian Council of Super Investors, a plaintiff in the case.
The group is seeking a permanent injunction barring News Corp. from going forward with its two-year extension of the poison pill.