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Bank sues News Corp. over purchase of Shine Group

Amalgamated Bank's lawsuit is sparked by Rupert Murdoch's decision to buy Shine Group, his daughter Elisabeth Murdoch's London-based television production company.

March 18, 2011|By Meg James, Los Angeles Times
  • Elisabeth Murdoch, left, and father Rupert and brother James watch horse racing at Britains Cheltenham Festival in March 2010. Rupert Murdoch is CEO of News Corp., which agreed in February to buy Shine Group, a television company owned by Elisabeth Murdoch.
Elisabeth Murdoch, left, and father Rupert and brother James watch horse… (Adrian Dennis, AFP/Getty…)

A New York bank's lawsuit challenging News Corp.'s planned $675-million purchase of Rupert Murdoch's daughter's television company raises a litany of criticisms that have long simmered below the surface of the $33-billion media giant.

"Murdoch historically has operated News Corp. as his own private fiefdom with little or no effective oversight from the board," the 46-page complaint filed Wednesday in Delaware Chancery Court by Amalgamated Bank alleges. The bank, through its funds, owns nearly 1 million shares of News Corp. common stock. It manages $12 billion for institutional firms and public employee pension funds.

Amalgamated's challenge was sparked by Murdoch's decision last month to purchase his daughter Elisabeth Murdoch's London-based television production company Shine Group — at an allegedly inflated value — with the primary reason of bringing her back into the News Corp. fold.

"This is going to be a very interesting case. It will be a wonderful case for professors to teach to their corporate law classes," UCLA law professor Lynn A. Stout said. "What the plaintiffs are alleging is that Rupert Murdoch is using his firm to funnel money to his daughter."

Earlier in her career, Elisabeth Murdoch owned TV stations in California — which she bought with financial help from her father — and later was a programmer at satellite TV service British Sky Broadcasting, which News Corp. partially owns. She left and started Shine in 2001.

The lawsuit claimed that the purchase of Shine "provides no material benefits to the company."

News Corp. officials beg to differ, noting that Shine's core business of producing shows is a fast-growing enterprise that would provide new opportunities for the global media concern.

"It's a great company with a great fit," News Corp. Chief Operating Officer Chase Carey said at an investment conference last week. "We think it's a fair value and really is in the sweet spot of something that adds dimensions to the heart of our business."

The lawsuit does not seek to block News Corp.'s planned purchase of Shine. Instead, the investors are seeking monetary damages, and argue that the directors of News Corp. breached their fiduciary duties.

The "vast majority of the board's members … are wholly lacking in independence since they are Murdoch family members or longtime friends, News Corp. executives or persons who have business relationships with Murdoch," the suit said.

News Corp. dismissed the lawsuit as without merit. The media company has said that the board's audit committee and an outside firm will evaluate the purchase.

The deal for Shine Group is expected to close within the next two to three weeks. Elisabeth Murdoch, who owns 53% of Shine, would reap about $320 million from the sale, according to the complaint.

The lawsuit also questioned several other transactions, including News Corp.'s purchase of James Murdoch's hip-hop record label Rawkus before shutting it down several years later. The lawsuit also noted that the 2006 sale of News Corp.'s 38% stake in DirecTV to John Malone's Liberty Media was a maneuver to increase Murdoch's control of News Corp. to 40% by removing Malone — a threat to Murdoch's control — from the company.

The case, according to Stout and other legal experts, probably will come down to whether Amalgamated Bank can demonstrate that News Corp.'s board of directors lacks objectivity.

"It's called the duty of loyalty and Delaware courts are famous for taking these cases seriously," Stout said.

Columbia University law professor John C. Coffee Jr. described the Delaware law firm handling the case, Grant & Eisenhofer, "an experienced firm." He said the law firm's tactical decision not to seek an injunction to block News Corp.'s purchase of Shine "an intelligent, creative attempt to show the court that this is not extortionist litigation."

Challenging the Shine deal is not the first time that the law firm has sued News Corp. In 2005 it challenged a poison pill provision the company adopted.

"It is always an uphill battle" to prove that "a majority of a corporate board of directors lacks adequate objectivity," Coffee said.

meg.james@latimes.com

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