Rupert Murdoch, CEO of News Corp.
Rupert Murdoch’s proposed plan to reunite News Corp and Fox faces opposition from one of the largest shareholders in both companies, Independent Franchise Partners.
The London-based firm believes other options, such as a break-up of News Corp, should also be explored. It also believes a recombination would not realize the full value of the company, a spokesperson confirmed to CNBC on Wednesday, following an earlier report by The Wall Street Journal.
Independent Franchise Partners is one of the largest non-Murdoch shareholders in both News Corp and Fox. It owns about 7% of the Class A shares and more than 6.5% of the Class B shares of News Corp, as well as about 6% of Fox̵[ads1]7;s Class A shares, according to FactSet.
The Murdoch family controls approximately 40% of the voting rights of both companies. Murdoch split the companies in 2013, remaining chairman of Fox and executive chairman of News Corp, while his son Lachlan Murdoch is chief executive of Fox and co-executive chairman of News Corp.
Representatives for News Corp and Fox declined to comment on Wednesday. During a recent earnings call with investors, Fox said there was no update from the special committee regarding the proposed transaction. There is no certainty that the merger will take place.
Last month, News Corp, owner of Wall Street Journal publisher Dow Jones, announced it was forming a special committee of board members to consider a possible deal. The proposal would once again merge the company with Fox, which was left over from the $71.3 billion sale of Twenty First Century Fox to Disney in 2019. Fox owns right-wing TV networks Fox News and Fox Business, which is a CNBC competitor .
What Murdoch thinks
Bringing the two companies together will allow Murdoch to consolidate leadership of his media empire and cut costs at a time when audiences are shrinking for both print media and cable TV as readers and viewers increasingly receive news from other outlets, such as social media, online – and streaming services.
The idea behind the reunion is that it would simply give the combined company more scale to compete at a time when media firms are competing for subscribers and digital advertising spending, said people familiar with the matter, who declined to be named.
A merger would also allow certain assets, such as Fox’s ad-supported streaming service Tubi, to easily cross into the UK and Australian markets and would open up more business opportunities for sports betting, they said.
Also, while not the reasoning behind the proposal, a combined company would also have more firepower to make acquisitions, as well as better ability to return capital to investors at a faster rate, the people added.
Independent Franchise Partners told the Journal that a straight exchange of shares between Fox and News Corp would dilute and delay the realization of News Corp’s significant intrinsic value.
The firm would not oppose a recombination as long as it was done in a way that would see News Corp shares valued at more than $30. However, it believes the only way to realize the share price is to sell parts of News Corp, which traded at around $18 on Wednesday.
This is the second non-Murdoch shareholder to withdraw from the proposed deal. Earlier this week, Irenic Capital Management said it sent a letter to the special committee saying Fox was not serving News Corp’s strategic goals and, like Independent Franchise, believes News Corp’s stock is undervalued.
Irenic, who owns about 2% of News Corp’s class B voting stock, said the company is undervalued and instead pushed the special committee to consider spinning off its digital real estate assets and Dow Jones.
Selling those assets would be more difficult than combining the two companies, the people familiar with the matter said, and individual businesses could lose the benefit of being part of a larger company.
A spokesperson for Irenic did not comment further, but pointed to an analyst’s comment on the proposed transaction.
“Every investor I’ve talked to over the past 10 years at News Corp has expressed that they think the company is far too complicated and should be simplified by selling assets or spinning off assets,” said Craig Huber of Huber Research Partners. “Putting the two together doesn’t make sense to us. … The problem is that they didn’t go far enough after they spun off News Corp in 2013.”
Fox Class A shares traded slightly higher on Wednesday, while News Corp Class A shares were up 3%. Fox’s market cap is nearly $17 billion, while News Corps was more than $10.5 billion.