News Corp faces legal backlash

Several US, Australian and European institutional shareholders have sued global media conglomerate News Corp for reneging on a promise to seek shareholder approval before extending a poison pill provision.

The suit, brought by a group of shareholders including the US-based Connecticut Retirement Plans and Trust Funds, Australia-based UniSuper and CARE Super, was filed in Delaware Chancery Court.

A News Corp spokesman called the suit "frivolous and without merit".

Fearing a hostile takeover, News Corp, controlled by chief executive Rupert Murdoch, enacted emergency poison pill provisions last year after Liberty Media boosted its voting stake in News Corp to nearly 20 per cent.

Although Liberty Media chairman John Malone has publicly declared his loyalty to News Corp's controlling Murdoch family and struck down speculation of a takeover, News Corp has extended takeover-prevention provisions for another two years.

Malone and Murdoch have been in talks since last year but have been unable to reach an accord over Malone's stake. These talks have ranged from swapping the shares for some News Corp properties and cash to spinning off Liberty's ownership to its shareholders.

Shareholders represented in the suit, which include a fund managed by Hermes Investment Management, said News Corp had promised shareholders it would seek shareholder approval before extending the terms of the defence as a condition for the approval of News Corp's plans to reincorporate as a US company.

"Shareholders considered these assurances necessary before agreeing to reincorporation because Australian corporate law generally provides greater protections for shareholders than Delaware corporate law," the shareholders said.

This year, News Corp's board of directors agreed to extend the provision by another two years.

Institutional Shareholder Services (ISS), an influential shareholders advisory group, recommended shareholders withhold votes for all four director nominations up for vote at News Corp's annual meeting on October 21.

Director nominees include Peter Chernin, News Corp's chief operating officer and Chase Carey, CEO of DirecTV Group, which is controlled by News Corp.

"Failing to put the pill to shareholder vote has caused a serious breach of trust between the board and its shareholders," ISS said. "Shareholders should have a voice in the adoption of a poison pill, and under our policy we recommend withholding votes from director nominees when the company fails to afford shareholders this opportunity."

Others named in the suit include Rupert Murdoch, his son, Lachlan, Chernin and Carey.

- REUTERS