No Love Fest for Murdoch

At News Corp.'s Oct. 21 annual meeting, the media mogul will face some unfamiliar anger from shareholders upset about a poison pill

By Ronald Grover

Annual meetings for Rupert Murdoch's News Corp. (NWS ) used to be genteel affairs. Held for decades in a hotel ballroom in the southern Australian town of Adelaide, Murdoch would read his annual address, politely answer a few questions, and have tea with his shareholders. But when the 74-year-old media baron bangs the gavel on Oct. 21 for News Corp.'s first annual meeting as a U.S. company, it's likely to be very different. Perhaps for the first time in his 52 years as head of the family-controlled company, Murdoch will face unruly shareholders, pointed questions, and opposition to some board members.

As shareholders gather for News Corp.'s annual meeting at New York City's stately Hudson Theater, the company is fighting a lawsuit by a dozen investors in Delaware, and a leading shareholder advocacy group has urged a "withhold" vote for the four board members up for reelection. Granted, it's a far cry from Disney's (DIS ) stormy meeting in 2004, when 45% of shareholders withheld votes for then-CEO Michael Eisner, leading to his early departure (see BW Online, 4/12/04, "Can Michael Eisner Hold The Fort?"). And Murdoch, whose family controls 29.9% of News Corp.'s voting shares, is in no danger of losing control. But the media mogul still may have a messy situation on his hands (see BW Online, 8/23/05, "Malone and Icahn: All Talk?").

At issue is Murdoch's decision to fight off investor John Malone, whose Liberty Media (L ) took a threatening 18% stake in News Corp. in late 2004 (see BW Online, 12/15/04, "Back in the Ring: Murdoch vs. Malone").


  Although Malone has said he has no takeover ambitions and has praised Murdoch's management, News Corp. quickly put in place a shareholder-rights provision that would repel an unwanted takeover by issuing new stock if an investor increased its stake beyond 15%. But a dozen institutional shareholders, including several in Australia, rebelled after Aug 10. when News Corp.'s board extended the one-year poison pill for two more years. News Corp. had said last November that it would put any extension up for a shareholder vote.

In early October, the dissident shareholders, which include the Connecticut Retirement Plans & Trust Funds and pension funds representing the Clinton (Mich.) police department, filed suit in Delaware alleging that News Corp. had broken a promise to them. The company called the lawsuit "frivolous," and Murdoch recently told reporters in Italy that News Corp. changed its policy because Liberty "proved difficult" in negotiating what he called a "quick resolution" of issues.

"It was never a bylaw, it was never a promise, it was never a pledge," said Murdoch, who called the board action "perfectly legal." Still, after consulting with News Corp., U.S.-based Institutional Shareholder Services on Oct. 7 urged shareholders to withhold their votes against the four board members up for election, including President Peter Chernin. ISS accused News Corp. of a "breach of trust with shareholders on the poison pill policy."


  Murdoch continues to battle back. To give News Corp.'s board a majority of independent board members, longtime member Stanley S. Shuman resigned from the board on Oct. 6. Shuman's firm, investment banker Allen & Co., received $3.9 million in fees from News Corp. last year. Also, Murdoch lawyers argued successfully against an expedited trial, and the court will hear News Corp.'s arguments to drop the suit on Nov. 10.

Meanwhile, the $23.8 billion-a-year company recently reported its third consecutive year of double-digit growth in revenue and operating earnings, with a 38% increase in net income, to $2.1 billion. Back in Adelaide that might have been worth a spot of tea. In the mean streets of New York, it could be a different story.

Grover is BusinessWeek's Los Angeles bureau chief

Edited by Patricia O'Connell

Before it's here, it's on the Bloomberg Terminal.