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 that Fox would be more benefit from a merger than News Corp., and warned that the board is under a fiduciary obligation to look at all avenues of creating value other than the one suggested by its primary shareholder.
News Corp. last month announced that it had established a committee of independent directors to review a possible Fox-News Corp. combination. The Murdoch Family Trust and Rupert Murdoch, the executive chairman, requested that the committee be formed.
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’s words were also included in the letter which was 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 asked about synergies between these 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 that Fox sell parts or a joint venture of News Media to Fox “would be a far better approach than simply combining the companies.”
It also highlighted financial risk for News Corp. with Fox potentially being sued “that may result in billions in costs.”Dominion Voting Systems is suing Fox for $1.6 billion, and Smartmatic for $2.7 billion.
Advertising could be affected by a possible recession. Fox, which is led by Lachlan Murphy, is more exposed to the market than News Corp., said the firm. In recent earnings, many media companies noted the poor performance of the advertising market.
“Combining News Corp with Fox will result in a combined company that is obviously more complex than both companies left separate,”It was.