Rupert Murdoch
Rupert Murdoch (Image: AP/Mary Altaffer)

Rupert Murdoch’s ambitions to re-merge News Corp with its former partner Fox Corp are in trouble — unless three important shareholders in News have a major change of heart.

There are 195,076 million voting shares in News Corp, and the Murdoch family trust controls 76,655 million of those. There are 385,950 million non-voting shares, of which the Murdoch family trust controls only 4000. Three shareholders — T Rowe Price, Independent Franchise Partners and Irenic Capital — have publicly expressed their reservations about the deal in its current form — and they speak for a combined total of 27% of News Corp’s issued voting and non-voting shares.

Although the Murdochs control the two companies through gerrymandered voting systems, their total control is 15.7% of News and a similar amount of Fox. Based on the three independent shareholders’ total stake of 27%, the deal will go under — if it ever gets to a vote.

Both News and Fox made clear in their recent quarterly reports that the views of the non-Murdoch family shareholders — especially the non-voting shareholders in News and Fox — will be vital.

The letters indicated that Mr Murdoch and the Murdoch family trust will not vote in favour of a transaction unless it is both recommended by the special committee and approved by a majority vote of the shares held by non-affiliated stockholders entitled to vote. The special committee, in consultation with its independent financial and legal advisers, will evaluate the potential transaction. The special committee has not made any determination with respect to the potential transaction, and there can be no certainty that the company will engage in the potential transaction. Neither the company nor the special committee intends to disclose further developments regarding the special committee’s work until it deems such disclosure is appropriate or required.

Opposition has firmed up in the past week with the trio of institutional holders revealing serious problems with the idea — mostly due to some of the assets in News (such as the newspapers and property) and Fox News in Fox Corp.

T Rowe Price is reported to have told News in a recent letter that it has strong reservations about the plan, according to a report in The New York Times. It believes the merger would probably undervalue News Corp. T Rowe Price owns 17.88% of News Corp and is the largest shareholder after the Murdoch family. It owns mostly non-voting shares.

The report quoted Vincent DeAugustino — one of the portfolio managers who oversees T Rowe’s investment in News Corp — as saying the firm had concerns related to the potential financial consequences of litigation against Fox News by the voting machine companies Dominion and Smartmatic.

Independent Franchise Partners is the largest holder of the voting shares in News after the Murdoch family trust’s 38%, owning about 8% of News Corp’s class A non-voting shares and 7.2% of the voting B class shares, for a total of 44.7 million shares. It also owns 6.4% of Fox Corp’s shares. Activist investor Irenic Capital Management holds 2% of News Corp’s shares.

The Murdoch family wants the deal sorted before it commits its votes (which will be voted in favour). It does not want an ambush and defeat at shareholder meetings.

However, there’s an added point of contention. The phrase from the statement in the quarterly reports “majority vote of the shares held by non-affiliated stockholders entitled to vote” raises the question who will vote, because at the moment only the holders of the B class voting shares would appear to be entitled to vote. But the story so far is that all shareholders will be entitled to vote, including holders of the A class non-voters. If that’s the case the idea is in big trouble.