Investors sue News Corp over `poison pill' defense

LEGAL ACTION: The investors say the company and its chairman, Rupert Murdoch, reneged on promises about shareholder protection at the time of its move to the US


Sun, Oct 09, 2005 - Page 11

A group of investors has sued the News Corp in Delaware Chancery Court, seeking to undo a "poison pill" defense the company created to fend off the advances of the Liberty Media Corp, its largest outside shareholder.

If the lawsuit is successful, it will add intrigue to the corporate fandango between Rupert Murdoch, who controls News Corp, and John Malone, Liberty's chairman. Murdoch put the poison pill in place to stymie pressure from Malone to force News Corp to sell some of its assets to Liberty.

The lawsuit was brought by investors in Australia, the UK, the Netherlands and the US. It accuses News Corp of breach of contract, fraud and misrepresenting itself when it sought and received approval from investors last year to move to the US from Australia.

The lawsuit, filed on Thursday, was announced on Friday by the plaintiffs. It also names the company's directors, including Murdoch's son Lachlan, who recently resigned from his executive role at the News Corp but who took an active role in the relocation.

Gary Ginsberg, a News Corp spokesman, said the lawsuit was a nuisance and without merit. He said the shareholders suing -- including seven Australian pension funds, the pension fund for Dutch government employees, and Connecticut Retirement Plans -- represent a small fraction of the company's outstanding shares.

At issue is a promise News Corp made to shareholders who wanted to preserve an Australian legal requirement that companies need shareholder approval to adopt poison pills.

A poison pill is a mechanism that makes it effectively impossible for a shareholder to increase a stake in a company beyond a set threshold -- in News Corp's case, 15 percent. News Corp owns the New York Post, the Fox TV network and 20th Century Fox studio.

The lawsuit notes that the company obtained significant shareholder approvals for the move to the US: more than 75 percent of the shares in both classes of its stock and more than 50 percent of the shareholders who voted.

Murdoch's family interests, which control 29.5 percent of the company's votes, were excluded from the tally.

As part of its successful effort to persuade investors, Murdoch's company agreed to make it board policy that shareholder approval would be required for a poison pill to be in place for more than one year. The relocation was approved at the company's annual meeting in October last year and took place on Nov. 3.

That policy was quickly put to the test a few days after the company moved. Malone increased his voting stake in News Corp to 17 percent from 9 percent, and a poison pill was then adopted.

The lawsuit arose after the company announced in a regulatory filing on Aug. 10 this year that the board had extended the pill for two more years. At the time, Murdoch said that he had lived up to the obligation he had made to investors before the relocation, but that the board had later changed its policy.

Ginsberg repeated that position on Friday and said a shareholder vote was unnecessary for such a policy move.

"We were very clear from the get-go," he said. "There is no fraud; we always said it was a board policy."

Charles Elson, a professor and corporate governance specialist at the University of Delaware, said News Corp was correct that a board policy could be changed without shareholder approval.

"That's the difference between a policy and a bylaw," he said.

Elson said, however, that the investors might have a case if they could prove that the company misled them about its intentions for the policy.