The numbers that kill the Murdoch succession

Nobody looks at the voting numbers for Rupert Murdoch’s News Corporation. For a start, looking at those numbers is hopelessly nerdy. And in any case his complete ascendancy—his ability to wield 39.7 per cent of the voting stock while only owning 13.5 per cent of the total stock–makes the results at annual meetings a complete no-brainer. At least that’s how it is pitched.

But last week’s voting numbers at the annual meeting in Los Angeles tell a different story. What they show is that Rupert Murdoch can indeed retain control of News Corp without even raising a sweat. But his children almost certainly won’t.

That’s the Murdoch succession. The numbers are ugly.

First, the whole voting situation is complicated by News Corp’s unilateral decision to reduce the voting rights of foreign shareholders. The reason cited is that earlier this year, News discovered that about a third of its stock was held by non-US residents, so it decided to cut their voting rights in half (it was since upgraded to 60%).

The Murdochs hold 39.73 per cent of the voting rights. They agreed to limit their vote to the same 39.73 per cent of whatever the total eligible votes was.

So News Corp, now has three classes of stockholders—

(1)  Class A stockholders. They own 66 per cent of the company, their stock is worth $US39 billion and they don’t get any say at all in how their company is run. Not a cracker. A vote-free zone. Not all of them are too pleased about that. In fact many of them are quite sniffy.

(2)  Non-US Class B stockholders. They own another 10.9 per cent of the company (and 32 per cent of the Class B voting stock) but only 60 per cent of their voting rights count. That includes the 6 per cent voting stake held by Rupert Murdoch’s closest supporter, Saudi Prince Alwaleed bin Talal.

(3)  US investors holding Class B voting stock. This class of voters is worth $8.2 billion and they basically control the entire group. And Rupert Murdoch holds 58 per cent of this group of fully voting shares, though as noted above he has agreed to only vote 39.37%

What did all this mean in practice? News Corp determined that after allowing for the reduced voting rights for non-US shareholders, there were 696.122.621 shares. As a consequence, The Murdoch voting block was reduced to 39.37% of this, so some 276,602,936 Murdoch shares could vote.

This seems a reasonable position. But almost a quarter of those News Corp shareholders who have a vote didn’t turn up to the annual voting. Shareholders provided proxies for only 529.6 million votes at Wednesday’s AGM.

That means you have to recalculate all the percentages,

What did that mean for Rupert Murdoch? Money for jam. Even his slightly reduced stake of 276.6 million shares gave him 52.2 per cent of the actual votes that would be cast last Wednesday, before he even showed up. Then he had Prince Alwaleed’s votes in his pocket (6.5% of the votes cast), which took Murdoch’s confirmed support to 58.7 per cent.

Game over. Little wonder then that reports of the meeting described it as virtually a walk in the park for Murdoch.

But drill down deeper into those numbers.

The major US proxy advisor International Shareholder Services had recommended fund managers support the board on each resolution so the protest vote should have been minimal.

Natalie Bancroft and Lachlan and James Murdoch all recorded major votes against them. If you look at the non-Murdoch votes, then 45.2 per cent of all votes went against Lachlan. If you  remove Alwaleed’s votes, then 52.9 per cent of non-Murdoch-aligned shareholders want him out.

But the real action was in the separate resolutions. The 27.4 per cent vote against the remuneration report was down from 35.4 per cent last year. It’s a non-binding resolution but if News Corp was an Australian company that’s two strikes and  would trigger an automatic spill of the entire board of directors.

In Australia, it’s illegal for management to vote for their own pay packages. So look at the non-Murdoch vote. If Rupert and James had not voted in favour of the remuneration deal and their $46 million pay deals, even with the support of Alwaleed, they would have failed with a 59.7 per cent vote against it.

The really bad news was that the votes against the Murdochs in other resolutions was even higher—62.5 per cent voted to replace Rupert Murdoch with an independent chairman (or 77 per cent if you don’t count Alwaleed)

And 62.5 per cent wanted News to drop its dual-stock structure and give voting rihgts to all shareholders (73 per cent discounting Alwaleed).

Those are astonishing numbers.

News Corp is a $60 billion company and at least 75 per cent of its owners (including those who have no voting rights at all) don’t support the current structure that gives the Murdoch family eternal power. Without that ISS proxy support the real figure is probably 80 per cent or more. They want it changed.

That’s $48 billion of capital saying we’ll support Rupert for now. But not a structure that locks his children automatically into power.

And the reality is, even though the Murdochs control the voting stock, you can’t fend off that weight of capital with the assurance that News director Viet Dinh gave shareholders in Los Angeles that the structure maintained the rights of minorities.

That would be a minority of one. Rupert Murdoch can do it, but I don’t think his children can. How can a family preside over multiple controversies, with some 70-odd employees arrested and major questions asked about family members, and try to say it’s business as usual?

So where does the family go? Their voting block isn’t going away. It’s tied up into the next generation.

The smart move is to position themselves as non-executive directors and in particular non-executive chairman. I think that’s what Elisabeth Murdoch’s MacTaggert lecture was about.

News Corp and the Murdochs need a figurehead, someone to make the right noises, to say the obvious, to right the ship, and to preside over a major diminution of power. Or perhaps the transformation into a different sort of power.

It’s not in James Murdoch’s nature to stop trying. But my money’s on Elisabeth.

News Corp AGM voting October 2012

   
       
Election of directors All votes Non-Murdoch votes Non Murdoch, Non Alwaleed
Name No Vote
José María Aznar 2.2% 4.7% 5.5%
Natalie Bancroft 20.8% 45.5% 53.4%
Peter L. Barnes 2.6% 5.7% 6.7%
James W.Breyer 1.9% 4.2% 4.9%
Chase Carey 1.7% 3.7% 4.3%
Elaine L. Chao 1.7% 3.6% 4.2%
David F. DeVoe 9.5% 20.7% 24.3%
Viet Dinh 2.1% 4.6% 5.3%
Sir Roderick I Eddington 11.4% 24.8% 29.0%
Joel I. Klein 3.3% 7.1% 8.3%
James R.Murdoch 16.9% 37.0% 43.4%
K.Rupert Murdoch 3.6% 8.0% 9.4%
Lachlan K. Murdoch 20.9% 45.2% 52.9%
Álvaro Uribe 0.7% 1.5% 1.8%

Proposal 2: A proposal to ratify the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending June 30, 2013 passed and was voted upon as follows:

All votes Non-Murdoch votes Non Murdoch, Non Alwaleed
No Vote No Vote No Vote
1.8% 3.9% 4.5%

Proposal 3: A proposal to approve, on an advisory, nonbinding basis, executive compensation passed and was voted upon as follows: % of No votes

27.4% 59.7% 69.8%

Proposal 4: A stockholder proposal to adopt a policy that the Chairman of the Board of Directors be an independent director was voted upon as follows: % of votes in favour

30.5% 66.2% 77.4%

Proposal 5: A stockholder proposal to adopt simple majority vote was voted upon as follows: % votes in favour

11.6% 25.1% 29.3%

Proposal 6: A stockholder proposal to eliminate the Company’s dual class capital structure was voted upon as follows: % votes in favour

28.8% 62.5% 73.0%
Note:  Calculating the effect of foreign voting restrictions
B stock on issue 798,520,953
Level of foreign ownership 32%
Number entitled to vote 696,122,621 (Source: additional proxy information Sept 28 12)
Murdoch B stock 317,290,709 39.73%  
Murdoch has to maintain 39.73% of reduced total number entitled to vote
276,602,936 Murdoch votes
Al Waleed 57,112,328 total shares 7.15%
Alwaleed’s 60% of total 34,267,397 can be voted 4.9%
32 per cent foreign owned 255,526,705 total but only 60% vote
60% of foreign owned total 153,316,023 foreign votes can be cast
Voter turnout 529,647,563 76.1%

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