By: E&P Staff A group of institutional investors from Australia, Europe and the U.S. filed suit in Delaware Chancery Court Friday against Rupert Murdoch, his son Lachlan Murdoch and others, seeking to block News Corp. from extending the so-called "poison pill" to thwart hostile takeovers.
On Aug. 11, News Corp announced it was renewing the poison pill provision for another two years beginning Nov. 8. Corporations adopt poison pills to defend against hostile takeovers. Typically, a takeover attempt can trigger provisions such as the issuance of new preferred shares that carry severe redemption requirements that have the effect of diluting the value of some shareholder's stakes and increasing the cost of a takeover.
The investors say the Murdochs broke "an express promise" made to shareholders earlier this year when News Corp. was negotiating to reincorporate from Australia to Delaware. According to the complaint, the shareholders agreed to the reincorporation largely because the Murdochs promised that no poison pills would be put into effect for more than 12 months without express shareholder approval.
The complaint says that in return for approving the move from Australia--where the complaint says, shareholders have more protections than under Delaware law--to Delaware, "shareholders insisted on the no-long-term-poison-pill promise, as well other assurances of improved corporate governance that would balance the power of the Murdoch clan, which owns 30% of News Corp's outstanding common stock."
Shareholders feared that "given free reign under Delaware law," News Corp. could adopt anti-takeover provisions that would allow them to become "permanently entrenched and impervious to shareholder and outside scrutiny," according to a statement by the institutional investors.
Shareholders approved the plan to "re-domicile" in Delaware on Nov. 12, 2004.
The lawsuit is asking the court to declare the Aug. 11 poison pill extension null and void, or to issue a permanent injunction barring News Corp. from going forward with the plan.
"The argument is not about the merits of the Shareholder Rights Plan. Our members simply want News Corp. to keep its word," Michael O'Sullivan, president of the Australian Council of Super Investors, said in a statement. "News Corp.'s explanation - that it changed its policy because circumstances have changed - is unacceptable. Poison pills are always introduced because circumstances change. The undertaking not to extend was either given in good faith or it was not. If it was, as we were led to believe at the time, it should be honored. If it was not, then shareholders were misled in 2004, in order to win support for the re-domicile. These are issues for the courts to decide."
A News Corp. spokesman was unavailable, his office told E&P Friday afternoon. A telephone message seeking comment from the corporation's law department was not immediately returned.
"This case is about a promise broken - plain and simple," said Stuart Grant, lead trial counsel for the investor group. Wilmington, Del.-based Grant & Eisenhofer, P.A., represents the plaintiffs.
Among the investors in the suit are two American retirement system funds: Connecticut Retirement Plans and Trust Funds and Board of Trustees of the Clinton Township Police and Fire Retirement System, a defined benefit plan serving retired employees of Clinton Township, Michigan police and fire departments.
The U.S. funds are joined by several non-U.S. institutional holders of News Corp. stock, including the following Australian "superannuation" (pension) funds: UniSuper Ltd. (a fund for 37 universities and more than 150 employers in Australia's higher educations and research sector); Public Sector Superannuation Scheme Board (a fund for employees of the Australian Public Service); Commonwealth Superannuation Scheme Board (a fund for employees of the Australian government); United Super Pty. Ltd. (a fund for employees of the Australian construction and building industry); Motor Trades Association of Australia Superannuation Fund Pty. Ltd. (the Australian fund for employees in the motor trades and allied industries); H.E.S.T. Australia Limited (the Australian national industry fund for employees in the health and community services fields); CARE Super Pty. Ltd. (provides superannuation and related services for 227,000 employers across Australia, managing over $2 billion in retirement savings).
Other foreign institutional investors (businesses and pension funds) are participating in the suit: Hermes Assured Limited ; Universities Superannuation Scheme Limited; and Stichting Pensioenfonds ABP, which is Grant & Eisenhofer said was the world's largest pension fund, serving the employers and employees of the Dutch government and educational system, with more than 2.6 million members.
Named in the lawsuit are Rupert Murdoch and his son Lachlan K. Murdoch, plus the following News Corp. officers and directors: Peter L. Barnes, Chase Carey, Peter Chernin, Kenneth E. Cowley AO, David R. Devoe, Viet Dinh, Roderick Eddignton, Andrew S.B. Knight, Thomas J. Perkins, Stanley S. Shuman, Arthur M. Suskind and John L. Thornton.
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