Starboard Files a Proposal at News Corp, Hoping to Break Murdoch's Control

Hedge fund Starboard Value has filed a shareholder resolution to repeal the dual-class shares that allow Rupert Murdoch to control News Corp, which publishes the Wall Street Journal.

Starboard's move comes as the 93-year-old media baron is locked in a court battle with several of his children to ensure that his son Lachlan Murdoch continues to run News Corp and TV powerhouse Fox Corp after his death.

Starboard's resolution would not be binding on News Corp, and the company may try to prevent it from being voted on at its next annual meeting of shareholders.

Nonetheless, the case represents a direct threat to Murdoch's authority over the media conglomerate. While he has faced similar issues in the past, this is his first since leaving his active role as board chair last year.

Starboard called for News Corp to spin off its digital-real estate subsidiary in October to unlock value for shareholders, just a few days after Reuters reported that the activist investor had acquired a stake in the company.

Starboard has now secretly filed a shareholder resolution calling for the elimination of News Corp's dual-class stock structure, which gives Murdoch 40% of the company's voting shares despite owning just roughly 14% of the equity, according to sources.

Jeffrey Smith runs Starboard Value, one of the world's most notable activist investors, and has recently pushed for changes at companies such as Match Group, Autodesk, and Salesforce.

According to a regulatory filing, as of June 30, Starboard owned 7.2 million Class A shares of News Corp, representing a 1.9% ownership, and 8.7 million Class B shares.

The sources requested anonymity because the topic is private. News Corporation did not reply to calls for comment. Starboard couldn't be reached for comment.

Murdoch has retained tight control over News Corp's administration since its inception as a holding company for his media empire in 1980. Companies are not required to follow the results of shareholder resolutions, but many do if they receive a large number of votes.

"A company's failure to act on a shareholder proposal that is approved or that receives strong support can result in reputational damage to the company and could signal to shareholders and proxy advisory firms that the board is not responsive to a matter of significant shareholder concern," Covington & Burling, a law company, wrote to customers last year.

Murdoch has previously ignored such votes, notably for much of the last decade, despite the fact that they were supported by two-thirds of voting shareholders who are not linked with him or his family.

This would be the first vote since Lachlan Murdoch succeeded his father as News Corp chairman. News Corp would have to show that the Murdoch family's continued control of the company is in the best interests of shareholders, even if the founder is no longer participating.

It is unclear whether News Corp will request that the US Securities and Exchange Commission remove Starboard's proposal from the agenda of its annual shareholder meeting, which is scheduled for the fall.

According to law firm Skadden, Arps, Slate, Meagher & Flom, companies requested that the SEC exclude approximately half of the shareholder proposals submitted during the most recent proxy season, and the SEC granted more than two-thirds of these requests.

The SEC can reject a shareholder request if it agrees with a firm that it would micromanage it or cause it to break the law.