News Corp. vote shows why activist funds wage impossible battles
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Rupert Murdoch with sons James Murdoch (left) and Lachlan Murdoch (right). Illustration: Brendan Lynch/Axios. Photos: David Benett/WireImage and David Paul Morris and Patrick Fallon/Bloomberg via Getty Images
Activist investors destined to lose the battle can still win the war.
Why it matters: A majority-controlled company is not immune from a shareholder attack, and not guaranteed a victory over the activist.
Driving the news: News Corp. announced Wednesday that it "convincingly" defeated Starboard Value's non-binding proposal to collapse the company's dual-class structure.
- Dual-class shares are loathed by many shareholders because they give majority voting power to a minority of investors.
- In News Corp.'s case, the Murdoch family controls 41% of the shareholder vote through its 14% stake.
Yes, but: Starboard received support from the majority of non-Murdoch affiliated shareholders, according to a person familiar with the matter.
- All independent proxy advisers in the U.S. and Australia backed Starboard, along with several investors that issued public support.
- The campaign showed that even though the shareholder math handed Starboard a loss, the fund won in terms of creating a wave of pressure on the company that will not go away soon.
Zoom in: "The fact is that an activist campaign, even at a control company where nothing can actually be forced to be done, is a major distraction and unpleasant and expensive," said Morgan Stanley's David Rosewater, speaking last week on a panel at a corporate governance conference run by the University of California Berkeley Law School.
- He pointed out that the history of campaigns aimed at dual-class companies has not been successful. According to Barclays, 98% of the 42 proposals submitted to collapse dual-class structures since 2019 have failed.
- The 42 proposals occurred at only 17 companies, Barclays notes, as several companies — including Alphabet, Meta, Ford, and UPS — are targeted annually with the dual-class motion.
- But that high fail rate isn't the point. "It's sort of a way to register unhappiness with the situation," said Rosewater, who runs Morgan Stanley's activist defense practice.
Indeed, activist campaigns that face long odds can still lead to victories outside of the ballot box.
- Starbucks employees who waged a proxy fight to unionize lost the vote but won key concessions as a result of the contest.
Flashback: Elliott Management attacked French drinks giant Pernod Ricard in 2018, a company where the Ricard family controlled a huge amount of the voting shares.
- The aggressive campaign did not lead to any change in control but the company did later announce a buyback and new investments. Chalk that up as an Elliott win.
What's next: Corporate attorney Sean Donahue, a partner at Paul Hastings, said he thinks some activists will move beyond just targeting dual-class structures. He thinks activists will attack majority controlled boards.
- "They can say 'Hey, look. We crushed you. We got 80% of the Class A ... this is a mandate," said Donahue, speaking on the same Berkeley Forum On Corporate Governance panel. "Four directors should resign. We should be appointed."
Editor's note: This story was updated to clarify that Starboard's proposal was non-binding and to add Barclays data in paragraph 11.
