News Corp may be a little too foreign for its own good
Has Rupert Murdoch and the board of News Corporation grabbed an unlikely opportunity to tighten the Murdoch interests’ control over the company?
On an early reading of yesterday’s surprise announcement from the company of an inadvertent breach of US broadcasting control laws, the answer is a maybe.
But enough doubt will be created by the move to cut the rights of non-US holders of the voting B class shares, to ease some of the mounting pressures on the board and the Murdochs from the UK phone-hacking, computer-hacking and bribery claims.
Judging by the statement, it seems News Corporation has discovered that is “too” foreign for America’s tough restrictions on foreign ownership of broadcast media. The company realised that it had allowed foreign investors to hold 36% Class B voting stock, the shares that control News Corp. That’s well over the 25% limit contained in America’s 1934 Communications Act. (That tells us how infrequently News has reviewed this important qualification, and how infrequently the broadcast licences are renewed).
In order to fix the problem, News said it has suspended half of the Class B voting rights of its investors outside the US, effectively halving the power of certain foreign investors.
The more widely traded Class A shares, which carry no votes in important decisions such as board member elections, are being bought back in the current $US5 billion program that has supported the News share price since last July.
Normally, such a move would increase the voting power of CEO and founder Rupert Murdoch and the Murdoch family trust, which holds 39.7% of the voting shares. But News says the Murdoch interests have agreed to cap its voting stake at 39.7% and refrain from voting shares they hold in a way that would increase their grip on the company.
News said had been reviewing its its foreign ownership level before applying to renew the licenses and found the breach of the voting limit. Most affected will be key supporter, Saudi Prince Alwaleed Bin Talal whose investment group controls 7% of the Class B shares. That is now cut to a voting right of 3.5%, which some analysts claim might damage Murdoch defence against adverse motions to be put at October’s AGM.
But the 36% of the company’s now can only account for 18% of the theoretical vote at the AGM, meaning Murdoch’s 39.7% will continue to dominate the 64% of the company that can vote (being US holders), regardless of whether it can vote its full holding or not. The Murdoch interests now effectively have 62% of the voting rights, even if they won’t be voted. The holding will stay at 39.7% of the new level of voting rights, or around 24% of the voting rights.
Theoretically that does slightly increase the possibility of US shareholders forcing change on the News Corp board and the Murdochs. But US shareholders have been stronger supporters of News and the Murdochs during the hacking and other scandals. They have taken advantage of the buyback to make easy money and would be loath to change the current comfortable situation.
Only a significant expansion of the scandal to the US via mooted court actions from at least two UK lawyers who claim their clients were hacked by the News of the World while they were in the US (Jude Law claims that, according to his lawyer, Mark Lewis). Another source of pressure on US shareholders would be legal action by the US government under the draconian Foreign Corrupt Practices Act for paying bribes to foreign officials to win business.
But the latest move does increase the voting power of US shareholders holding voting shares, including the likes of Calpers, the giant Californian public service fund manager and New York City Pension Funds. They and others have been critical of the board and the Murdochs and have called for big changes, including splitting the role of chairman and CEO (Rupert Murdoch’s current gig) into two jobs.
US investor Christian Brothers Investment Services has already lodged a motion for October’s AGM calling for a split in the chairman’s role. By then the issue could be very hot, forcing those big American holders to make a stand on change on the board.
The 2011 AGM in Los Angeles late last October saw 35% of B class shares voted against the re-election of James Murdoch to the News Corp board. Even with greater voting power by US shareholders, the vote against James Murdoch would have have topped the required 50.01% level.
The share suspension will remain in place until the amount of Class B shares held by foreign investors has returned below the 25%, which News Corp has no control over. In reality, the change is indefinite and the Murdochs’ control over News Corp and the ability to deflect nasty motions at the AGM is strengthened, regardless of the voting rights.
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