News Corp, Fox reunification faces opposition from major shareholders

Rupert Murdoch, Chief Executive Officer of News Corp.

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Rupert Murdoch’s proposed reunion plan News Corp and Fox faces opposition from one of the largest shareholders of both companies, Independent Franchise Partners.

The London-based company believes other alternatives, such as News Corp’s dissolution, should also be explored. It also believes that a new combination would not realize the full value of the company, a spokesman confirmed to CNBC on Wednesday, following an earlier Wall Street Journal report.

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Independent Franchise Partners is one of the largest shareholders in both News Corp and Fox, that’s not Murdoch. According to FactSet, the company owns about 7% of News Corp’s Class A shares and more than 6.5% of Class B shares, and about 6% of Fox’s Class A shares.

The Murdoch family trust controls approximately 40% of the voting rights of both 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 co-executive chairman of News Corp.

News Corp and Fox officials declined to comment Wednesday. During a recent earnings call with investors, Fox said there was no news from the select committee regarding the proposed transaction. There is no certainty that the merger will happen.

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

What Murdoch thinks

Bringing the two companies together would allow Murdoch to consolidate leadership in his media empire and cut costs at a time when audiences for both print media and cable television are shrinking as readers and viewers increasingly get their news from other channels how to get social media. online and streaming services.

The thinking behind the reunion is that it would simply give the combined company greater reach to compete at a time when media companies are competing for subscribers and digital advertising spend, said people familiar with the matter, who declined by name to be called.

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

While that’s not the rationale behind the proposal, a combined company would also have more firepower to make acquisitions, as well as a better ability to return capital to investors faster, the people added.

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

The company would not oppose a recombination as long as it was conducted in a manner that values ​​News Corp stock at more than $30. However, it believes the only way to realize this stock price is to sell portions of News Corp, which were trading at around $18 on Wednesday.

This is the second non-Murdoch shareholder to push back on the proposed deal. Earlier this week, Irenic Capital Management said it sent a letter to the select committee saying Fox had failed to serve News Corp’s strategic goals and how Independent Franchise believed News Corp’s stock was undervalued .

Fox and News Corp.  consider merging after decades apart

Irenic, which owns about 2% of News Corp’s Class B voting shares, said the company was undervalued and instead pushed the special committee to spin off its digital real estate investments and Dow Jones.

Selling those assets would be more difficult than bringing the two companies together, sources said, and individual companies could lose the benefit of being part of a larger company.

A spokesman for Irenic did not comment further, but referred to an analyst’s comment on the planned transaction.

“Every investor I’ve spoken to about News Corp over the past 10 years has expressed that they think the company is way too complicated and should be simplified through asset sales or asset spin-offs,” Craig said Huber from Huber Research Partners. “To put the two together makes no sense to us. … Trouble is, after splitting from News Corp in 2013, they didn’t go far enough.”

Fox’s Class A shares were slightly higher on Wednesday, while News Corp’s Class A shares gained 3%. Fox’s market value is nearly $17 billion, while News Corp’s was more than $10.5 billion.

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