NEW YORK - Investment firm Starboard Value LP has issued a call for News Corporation to eliminate its dual-class share structure, arguing that it does not serve the best interests of shareholders and is reflective of poor corporate governance. Starboard, a significant shareholder of News Corp (NASDAQ:NWSA), contends that the current structure, which has been in place for decades, gives the Murdoch family outsized influence and exacerbates the company's undervaluation.
The firm has submitted a non-binding proposal for vote at News Corp's 2024 Annual Meeting, urging the Board of Directors to take necessary actions to collapse the dual-class share structure. Starboard's managing member Jeffrey C. Smith stated that despite the Murdoch family's approximate 14% economic stake in News Corp, they control 41% of the vote due to the unequal voting rights of the company's share classes.
The transition of power from Rupert Murdoch to his children has raised concerns about the stability and strategic direction of News Corp, with recent legal battles over control of the Murdoch Family Trust highlighting these issues. Starboard argues that there are no reasonable arguments to extend super-voting rights to the inheritors of a founder, and that the company's governance should reflect the best interests of all shareholders.
Previously, nearly 90% of unaffiliated shareholders supported a proposal to eliminate the dual-class structure, which garnered 49.5% of the total vote. However, the Board did not act on this clear directive from shareholders. Starboard believes that majority support for their current proposal will send a decisive message to the Board.
This call to action is part of Starboard's ongoing engagement with fellow shareholders and is based on a press release statement. The investment firm plans to file a detailed proxy statement in the coming weeks and continues to advocate for shareholder rights and value creation.
In other recent news, News Corp has reported record profitability in its fourth quarter, marking a strong finish to the fiscal year 2024. The company's revenues saw a 6% increase to nearly $2.6 billion, while profitability rose by 11% to $380 million. Key contributors to this performance were the book publishing, digital real estate services, and Dow Jones segments.
News Corp also announced a partnership with OpenAI and plans for digital expansion and cost efficiencies in fiscal 2025. Despite challenges in the U.K. digital advertising due to platform algorithm changes, the company anticipates improvements across its segments.
While News Corp's News Media revenues were down by 5% year-over-year, its digital real estate services segment saw a 21% revenue increase, Dow Jones grew by 4%, and HarperCollins' EBITDA rose by 250%. The company is reviewing strategic options for the Foxtel Group and plans to enhance digital progress through restructuring in Australia. These are the latest developments in the company's ongoing efforts to navigate the evolving media landscape.
InvestingPro Insights
In light of Starboard Value LP's push for corporate governance reform at News Corporation, examining the company's financial metrics can provide additional context. News Corp's market capitalization stands at a solid $15.34 billion, reflecting the company's substantial presence in the media industry. Despite concerns over the dual-class share structure, News Corp has demonstrated a stable financial performance, with a revenue growth of 2.09% in the last twelve months as of Q4 2024, and an even more robust quarterly revenue growth of 5.92% in Q4 2024.
The company's gross profit margin is notably strong at 50.41%, which is an indicator of its pricing power and cost control measures. This is coupled with an operating income margin of 7.79%, signifying the company's ability to translate its revenues into profits efficiently. News Corp has also maintained a positive return on assets at 2.11%, suggesting effective use of its assets in generating earnings.
From an investment standpoint, News Corp's PEG ratio of 0.74 points to a potentially undervalued stock if one considers the company's earnings growth prospects. This metric may resonate with investors who are looking for growth at a reasonable price, especially in the context of Starboard's argument that the company is undervalued.
InvestingPro Tips suggest that investors should consider News Corp's recent price movements, which have seen a year-to-date total return of 7.9%, and an impressive one-year price total return of 28.72%. These figures, alongside the current price being at 93.44% of its 52-week high, might indicate a positive market sentiment towards the company's future prospects. For those interested in delving deeper into the company's potential, InvestingPro offers additional insights and tips, with numerous more listed on the platform.
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