News Corp. Activist Investor Calls Potential Merger With Fox A Bad Idea, Suggests Others Ways To Maximize Value “For All Shareholders”

Irenic Capital, which owns about 2% of News Corp. has taken issue with its potential merger with Fox, noting the latter’s advertising exposure and legal exposure. A combination would create a more complex company and turn off investors, instead of boosting the company’s lagging stock price, it said in a letter to the News Corp. board, suggesting, instead, a spinoff of the digital real estate business or of Dow Jones.

Irenic believes a merger would benefit Fox far more than News Corp. and warned that the board has a fiduciary duty to explore all possible avenues to create value beyond the one suggested by its primary shareholder.

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Last month, News Corp. announced that its board had formed a special committee of independent directed to evaluate a potential combination with Fox. It did so at the request of executive chairman and Rupert Murdoch and the Murdoch Family Trust.

The committee “is tasked with evaluating a proposal from the Company’s dominant shareholder, who has economic interests on both sides of its proposed recombination transaction. In fact, this shareholder’s economic ownership is weighted more on the side of Fox than on the side of News Corp. As a consequence, this shareholder’s interests are fundamentally different from the interests of the Company and the independent shareholders to whom you owe your fiduciary duties,” Irenic said in the letter, which it also made public. “Responding to a dominant shareholder puts you in a difficult position. But in such a situation, your charge is clear. Your responsibility is to maximize value for all News Corp shareholders.”

The letter questioned synergies between the two companies. “And even if such synergies do exist today, they would principally benefit Fox and reside in the News Media segment of News Corp. For example, Fox Business may benefit from greater integration with The Wall Street Journal and some of Dow Jones’ other properties, but it is highly debatable whether the benefits from such an association flow both ways.” It suggested a joint-venture or sale of parts of News Media to Fox “would be a far better approach than simply combining the companies.”

It also noted financial risk for News Corp., with Fox subject to litigation “that may result in billions in costs.” Fox is being sued by Dominion Voting Systems for $1.6 billion and by another electronic voting firm, Smartmatic, for $2.7 billion.

A possible recession could impact advertising, where Fox, led by Lachlan Murdoch, is more exposed than News Corp., the firm added. Many media companies have noted the choppy ad market in recent earnings.

“Combining News Corp with Fox will result in a combined company that is obviously more complex than both companies left separate,” it said.

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