DEFC14A: Starboard Urges News Corp Stockholders to Eliminate Dual-Class Share Structure

Starboard Value is soliciting proxies to approve a non-binding proposal urging News Corp's board to eliminate its dual-class share structure at the upcoming 2024 Annual Meeting of Stockholders.

Summary

• Starboard Value, a significant News Corp stockholder, is seeking support for a proposal to eliminate the company's dual-class share structure.
• Starboard believes this structure impairs shareholder value, reduces accountability, and increases risk.
• The proposal is non-binding but aims to send a clear message to the Board of Directors.
• Starboard owns approximately 4.6% of Class B Common Stock and 3.7% of Class A Common Stock.
• The 2024 Annual Meeting of Stockholders is scheduled for November 20, 2024.
• Starboard argues that News Corp's share price has underperformed its peers and the broader market, especially when excluding its stake in REA Group Ltd.
• They claim the market undervalues News Corp's portfolio, attributing this to the dual-class share structure.
• Starboard highlights that dual-class share structures are uncommon and increase risk due to the outsized influence of certain stockholders.
• They also point to recent Murdoch family dynamics and potential conflicts as further increasing uncertainty.
• Starboard is recommending stockholders vote for the election of directors, ratification of the accounting firm, and approval of executive compensation, in addition to the dual-class elimination proposal.

Sentiment

Score: 6

Explanation: The document presents a mixed sentiment. While it acknowledges News Corp's transformation into a digital-first business, it strongly criticizes the dual-class share structure and its impact on valuation and governance. The call for change suggests a belief in the company's potential but dissatisfaction with the current structure.

Positives

• Starboard believes eliminating the dual-class share structure will promote shareholder value, improve governance, and increase News Corp's accountability to investors.
• Starboard believes that News Corp has transformed itself from a business comprised primarily of newspaper assets in decline to a growing, digital-first, highly-recurring, subscription-oriented business.
• Starboard believes that the quality of News Corp's portfolio of businesses should enable it to garner a meaningfully higher valuation multiple.

Negatives

• News Corp's share price has underperformed its peers and the broader market over the last 10 years.
• The market undervalues News Corp's portfolio, valuing it at approximately 3x CY2025 EBITDA.
• News Corp's dual-class share structure is considered an overhang on the stock by Wall Street analysts.
• News Corp has a QualityScore of 10 from ISS, equating to the highest possible level of governance risk.
• The dual-class share structure enables founding shareholders to become entrenched and be unresponsive to the interests of all shareholders.
• News Corp has a long history of being unresponsive to stockholder proposals seeking to collapse its dual-class share structure and recommendations by leading proxy advisory firms.

Risks

• The dual-class share structure introduces outsized risk to stockholders not affiliated with the Murdoch Family Trust (MFT).
• Recent Murdoch family dynamics and a legal battle over control of the MFT create uncertainty.
• The concentration of voting power in the MFT could discourage third parties from making acquisition proposals.
• The four Murdoch siblings with voting rights within the MFT are reported to have widely differing worldviews, which, collectively, could be paralyzing to the strategic direction of the Company.

Future Outlook

Starboard hopes the Board will realize its obligation to represent the best interests of all stockholders and take action to remove the dual-class share structure.

Management Comments

• Jeffrey C. Smith of Starboard Value believes eliminating the dual-class share structure would be in the best interests of all News Corp stockholders.
• Wall Street research analysts have noted News Corp's dual-class share structure serves as an overhang on the stock.

Industry Context

The document highlights the trend of investors and governance organizations favoring one-share, one-vote structures, contrasting News Corp's dual-class structure with this principle.

Comparison to Industry Standards

• The document compares News Corp's share price performance to its proxy peer group, The New York Times Company, and the broader market, noting significant underperformance.
• The document notes that only 6% of companies in the S&P 500 have a dual-class share structure with unequal voting rights, making News Corp an outlier.
• The proxy peer set based on Company's 2023 proxy statement and includes the following companies: BKNG, FDS, IPG, LBTY.A, NFLX, NXST, OMC, PARA, SIRI, TGNA, TRI, WBD, and ZG.

Legal Proceedings

• The document mentions a legal battle over ongoing control of the Murdoch Family Trust (MFT).

Stakeholder Impact

• The proposal aims to benefit all News Corp stockholders by improving governance, increasing accountability, and potentially increasing the company's valuation.
• The document suggests that the current dual-class structure benefits the Murdoch family at the expense of other shareholders.

Next Steps

• Stockholders are urged to vote on the Dual-Class Elimination Proposal at the Annual Meeting on November 20, 2024.
• Starboard may have a different recommendation on the election of the Company's directors in the future should the Board not act in accordance with stockholders' wishes.
• Starboard intends to continue to closely monitor the Company's executive compensation program following the Annual Meeting to ensure proper alignment of pay and performance.

Key Dates

Keywords

dual-class share structure, corporate governance, Starboard Value, News Corporation, shareholder value, proxy statement, Murdoch Family Trust, REA Group, voting rights, accountability