Rupert Murdoch has today reached a humiliating settlement with the
global coalition of institutional shareholders who sued News Corp in
Delaware for unilaterally extending its notorious poison pill
arrangement for two years without seeking shareholder approval. So humiliating, in fact, that Rupert hasn’t even informed the ASX,
even though the development has helped push News Corp shares 18c higher
to $24.90, it’s highest point since the move to America in November
2004.

Invoking the poison pill to stop John Malone’s Liberty Media adding
to its 18% News Corp voting stake was bad enough, but then Rupert
unilaterally extended it for two years last August and refused to honour
his earlier court-noted pledge to put such an extension to a
shareholder vote. A coalition of institutions sued in Delaware and now
Rupert will belatedly put the extension to a vote at the 2006 AGM in
New
York in October, plus pay all the legal bills, which is a sure sign of who
has lost.

The outcome is only advisory because Rupert has retained the
right to ignore it. But if that happens, the parties will return to the
Delaware
courts and slug it out again and the institutional argument would be
strengthened by the shareholder vote. It would be an extremely brave
News Corp director, even considering Rupert’s ability to attract and
retain sycophants, who sanctions such a brazen move.

While the institutions will be vital to the voting outcome, it will
ultimately be decided by the three biggest shareholders – the Murdoch
family with 29%, John Malone’s 18% and Saudi Prince Alwaleed bin Talal with 5.5%.

Considering the poison pill is all about entrenching Rupert’s family
control, the Murdoch family shouldn’t be able to vote given that they clearly have an
interest in the outcome – something which matters in Australia.
However, slack Delaware laws not only tolerate these poison pills but also allow
conflicted controlling shareholders who propose them to vote.

Rupert and his supportive Saudi Prince will be hard to beat and it
is
not even clear that Malone will vote against the extension given that
he supported every resolution at last year’s AGM – including supporting
four directors who compromised their integrity by supporting the poison
pill extension.

From Rupert’s point of view, the settlement buys him another six months
to reach a compromise with Malone. The fear here has always
been that Rupert will use company cash and assets to get Malone off the
share register and entrench his family’s control once again, even if it
hurts the share price. History shows that Rupert puts personal control and world domination ahead of shareholder returns.

The recent recovery in the News Corp share price is another factor
which has taken some heat off Rupert because the opportunistic lows
associated with all that selling by Australian institutions has now
passed. Rupert partly defended the poison pill on the basis that it
would stop Malone taking control on the cheap and it is doubtful
Liberty would be prepared to spend another $3 billion at $25-plus a
share to match Rupert’s voting stake.

That said, even with 18% Malone is well positioned to join up with key
institutions and stop Rupert handing management control of News Corp to
his children, which is what this is all about.

Peter Fray

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