Potential News Corp, Fox meeting faces opposition from major shareholder

The plan proposed by Rupert Murdoch to unite press company and Fox faces opposition from one of the major shareholders of both companies, Independent Franchise Partners.

The London-based company believes other alternatives, such as breaking up News Corp, should also be explored. He also believes a recombination would not realize the full value of the business, a spokesperson confirmed to CNBC on Wednesday, following an earlier Wall Street Journal report.

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Independent Franchise Partners is one of the main shareholders of News Corp and Fox that is not Murdoch. According to FactSet, he owns about 7% of Class A shares and more than 6.5% of Class B shares of News Corp, as well as about 6% of Class A shares of Fox.

The Murdoch family trust controls approximately 40% of the voting rights of the two companies. Murdoch split the companies in 2013 and remains chairman of Fox and executive chairman of News Corp, while his son Lachlan Murdoch is CEO of Fox and executive co-chairman of News Corp.

Representatives for News Corp and Fox declined to comment on Wednesday. During a recent earnings call with investors, Fox said there was no update from the special committee regarding the proposed transaction. There is no certainty that the merger will take place.

Last month, News Corp, owner of Wall Street Journal publisher Dow Jones, announced it had formed a special committee of board members to consider a possible deal. The proposal would merge the company again with Fox, which remained from Twenty First Century Fox’s $71.3 billion sale to Disney in 2019. Fox owns right-wing television networks Fox News and Fox Business, which is a competitor from CNBC.

Combining the two companies would allow Murdoch to consolidate leadership in his media empire and reduce costs at a time when viewership is shrinking for both print and cable television as readers and viewers receive growing their news from other media, such as social media, online services and streaming.

The idea behind the meeting is that it would simply give the combined company greater scale to compete at a time when media companies are competing for subscribers and digital advertising spend, people familiar with the matter said, who declined to be named.

A merger would also allow certain assets, such as Tubi, Fox’s ad-supported streaming service, to easily enter the UK and Australian markets, and open it up to more sports betting business opportunities, they said. .

Additionally, while not the rationale for the proposal, a merged company would also have more firepower to make acquisitions, as well as a better ability to return capital to investors at a faster rate. , the people added.

Independent Franchise Partners told the Journal that a simple stock swap between Fox and News Corp would dilute and delay the realization of News Corp’s substantial intrinsic value.

The company would not object to a recombination as long as it was done in such a way that News Corp shares were valued at more than $30. However, he thinks the only way to realize that stock price is to sell parts of News Corp, which was trading at around $18 on Wednesday.

He’s not the first non-Murdoch shareholder to push back against the proposed deal. Earlier this week, Irenic Capital Management said it sent a letter to the special committee saying Fox was not serving News Corp’s strategic objectives and, like Independent Franchise, believes News Corp’s stock is undervalued.

Irenic, who owns about 2% of News Corp’s Class B voting stock, said the company was undervalued and instead pushed the special committee to consider divesting its digital real estate and Dow Jones assets.

Selling those assets would be more difficult than combining the two companies, the people familiar said, and individual businesses could lose the benefit of being part of a larger company.

A spokesperson for Irenic did not comment further, but highlighted an analyst’s comment on the proposed transaction.

“Every investor I’ve spoken to over the past 10 years on News Corp has said they think the business is way too complicated and should be simplified by selling assets or splitting assets,” said Craig Huber of Huber Research Partners. “Bringing the two together doesn’t make sense to us. … The problem is that they didn’t go far enough after their separation from News Corp in 2013.”

Airlie Funds Management, which has a small stake in News Corp, also said it did not believe merging the two companies would increase value, The New York Times previously reported, and would not support a merger unless Fox pays a significant premium. in News Corp’s stock price or entered into another transaction simultaneously, such as the sale of News Corp’s real estate assets.

Class A shares of Fox were trading lightly on Wednesday, while Class A shares of News Corp were up 3%. Fox’s market value is nearly $17 billion, while News Corp’s was over $10.5 billion.