Rupert Murdoch's News Corp is being sued by shareholders for the alleged "nepotism" of buying his daughter Elisabeth's television production company Shine for more than £400m. The Amalgamated Bank of New York (ABNY) and the Central Labourers Pension Fund (CLPF), both shareholders in News Corp, have filed complaints that accuse the media mogul of treating the business "like a wholly-owned family candy store".
The action surprised the company, which had considered the matter a done deal. But as a trustee for several funds, the ABNY holds about a million shares in News Corp and filed its complaint in Wilmington, Delaware. The CLPF, based in Illinois, filed a separate complaint and demanded access to the News Corp books and the records which explain its decision-making process in buying Shine.
Lawyers for the bank said in the complaint that the News Corp board should have done more to ensure the deal represented good value for shareholders. "Although the transaction makes little or no business sense for News Corp and is far above a price any independent, disinterested third party would pay for Shine, it is unsurprising that the transaction was approved by News Corp's board," it said. "In addition to larding the executive ranks of the company with his offspring, Murdoch constantly engages in transactions designed to benefit family members."
ABNY said the Shine transaction was an attempt to further the "selfish" interests of News Corp's controlling shareholder at the expense of the company. "The transaction violates the entire fairness standard both on the basis of price and process," it said. "Once the prodigal daughter is back into the News Corp fold, she will vie with her brothers, board members James Murdoch and Lachlan Murdoch, for the position of successor to Rupert Murdoch's global media dynasty." News Corp described the claim as "without merit".
ABNY's shares amount to only 0.003 per cent of News Corp stock. The company argues that Shine, one of Britain's largest independent production companies with a turnover of £396m, is a "great fit" for the business which will give it more international reach. The deal – which still has to go before News Corp's audit committee – is expected to pave the way for Elisabeth, 42, to take a seat on the board. She had previously declined invitations to join, although she has attended meetings as an observer. When the deal was agreed in principle, Rupert Murdoch said: "Shine has an outstanding creative team that has built a significant independent production company in major markets in very few years, and I look forward to them becoming an important part of our varied and large content creation activities. I expect Liz Murdoch to join the board of News Corporation on completion of this transaction."
His daughter expressed delight that Shine, which she founded in 2001 and which has a portfolio that includes Spooks and Masterchef, would be joining "such an extraordinary group of companies" as News Corp. She said: "In a rapidly consolidating global TV industry, this alliance uniquely provides the conditions in which Shine can continue to lead and prosper. News Corporation is the partner that enables us to maintain our aspiration to be best in class."
Mr Murdoch is trying to buy all the shares he does not own in the satellite broadcaster BSkyB. Although the Culture Secretary Jeremy Hunt controversially decided not to refer the deal to the competition authorities, Mr Murdoch faces a period of tough negotiations with BSkyB's minority shareholders over the price of the 61 per cent of company shares he does not own.
How the tycoon bestrides News Corp
Rupert Murdoch dominates News Corp, a company that began with his father's newspaper, The Adelaide News, and which now spans the globe. But that does not mean he can do with it as he pleases.
The Murdoch family owns 40 per cent of one category of shares in the company. The rest are traded on the stock market in the US, among individual shareholders who want a piece of the vast profits Mr Murdoch generates, and among institutions who invest other people's pension fund money or savings. The owners of these shares have a say in how the company is run, even if they rarely gang up in sufficient numbers to trouble Mr Murdoch. They have a say in the election of directors – and have been happy to go along with the appointment to the board of James Murdoch, Mr Murdoch's son, and two other siblings, Elisabeth and Lachlan before him. They have a say, also, on spending, on outside advisers, and on any other issue that shareholders want to raise at their annual meeting.
But when they think directors are squandering the company's money on a bad deal – squandering, in effect, profits that should be given to them in dividends or reinvested in new business ventures that could boost the value of their shares – sometimes the quickest and best way to get a hearing is through the courts.
The two shareholders who have revolted over the Shine deal own only a tiny sliver of the company, little more than 1 million shares out of more than 2 billion, but they are standing up for even smaller voices. Amalgamated Bank of New York is a trustee for funds popular with individual investors, while the Central Labourers Pension Fund invests on behalf of 500,000 workers from 12 unions, mainly in the construction industries in the Midwest.