News Corp sued over ‘poison pill’

Institutional investors have sued Rupert Murdoch’s News Corp claiming it reneged on a promise to protect shareholders when it moved to the US.

Investors allege the group failed to get their approval to extend measures to protect it against a takeover.

Last year, News Corp vowed not to extend this “poison pill” beyond a year if investors backed a move to the US.

But, in August 2005 – after relisting in the US – News Corp said it was extending the strategy to two years.

Investors are angry at the change as they claim that they had greater legal protection when the company was listed in Australia, where it was incorporated before it moved its official base to Delaware in the US.

A statement from the law firm representing the shareholders said investors felt “betrayed” by News Corp.

It added that investors now feared News Corp – if given free rein – could bring in measures that would leave it “permanently entrenched and impervious to shareholder and outside scrutiny”.

Michael O’Sullivan, president of the Australian Council of Super Investors – one of the plaintiffs in the case said – the suit raised questions about whether investors “were misled in 2004, in order to win support for the re-domicile”.

Other plaintiffs in the case launched by US, Australian and European institutions include the US-based Connecticut Retirement Plans and Trust Funds, Australia-based UniSuper.

A spokesman for News Corp dismissed the case, filed in Delaware Chancery Court, as “frivolous and without merit”.

News Corp originally invoked the so-called “poison pill” measure in August last year amid fears that Liberty Media was about to launch a hostile takeover bid for the group.

The move would ensure the Murdoch family, which holds 29.5% of the firm, remained in control to ward off any such bid.

Liberty fuelled speculation about its intentions after it boosted its stake in News Corp stock offering voting rights from 9% to 17%.

Despite Liberty denying that it planned to make any play for the media giant, News Corp reacted by outlining plans for a “poison pill” measure to protect the group.

If implemented, the poison pill plan gives existing shareholders the right to double their holdings at half the current share price if anyone takes control of 15% of the company’s shares – a move that massively dilutes any potential bidder’s holding in the firm.