News Corp’s Dual Class of Shares Could Be Worth $10 Billion+ in Missed Value
On Friday, Reuters reported that Starboard Value, a hedge fund, was preparing to file—and has since filed—a shareholder resolution to eliminate News Corp’s dual-class share structure. In a letter to shareholders of News Corp, Starboard wrote:
To be clear, we believe dual-class share structures are NOT in the best interests of shareholders and are NOT reflective of best-in-class corporate governance practices. That being said, we can understand that there are limited and unique circumstances where some may consider the structure to be beneficial. Theoretically, some may believe dual-class share structures could provide potential benefits to recently listed companies that, perhaps, want their visionary founder to be insulated against short-term pressures for a limited period of time. However, News Corp could not be further from this archetype.
News Corp and its predecessor and related companies have had dual-class share structures in place for decades under the leadership of founder Rupert Murdoch. However, at last year’s annual meeting, Rupert Murdoch transitioned to Chairman Emeritus and his son, Lachlan Murdoch, became the sole Chair of News Corp. As noted above, while we can understand how some could see a benefit to a visionary founder retaining outsized control for a limited duration of time, that potential understanding vanishes as super-voting power and the associated protections transition to others.
In other words, Starboard could, theoretically, understand why News Corp needed to have its dual share structure when Rupert Murdoch, the founder, was running things, but once his son took over—for reasons entirely based on merit, I’m sure—why should a public company have that share structure?
The important thing to understand with a dual class of shares is you can own a relatively small percentage of the total stock while having a disproportionately large percentage of the voting rights. In the case of News Corp, the Murdoch Family Trust owns 14% of the company, but when it votes on certain issues, its votes count for 41% of the total vote.
This sort of dual share structure isn’t uncommon. There are plenty of companies in both media and other industries that do this. The issue is that if you don’t own the vote-heavy shares, your voice matters far less, even if you’ve invested a lot of money into the business.
The issue as it stands today is that News Corp is undervalued. Let’s walk through why. As a business, it generated about $10 billion in revenue in 2024 with $1.5 billion in EBITDA. 2023 was a pullback year for the business, but in 2022, it actually generated a bit more revenue and EBITDA. You can see the full data here.
A couple of years ago, another hedge fund, Irenic Capital, announced that it was attempting to force News Corp to split up assets. Its argument was that News Corp as a holding company was valued less than the individual assets.
For example, News Corp owns 61% of REA Group, a real estate advertising business based out of Australia. That’s worth about $11 billion since REA Group is a public company and worth a total of $18 billion. News Corp, itself, is worth $15.3 billion. So, if we look at the above P&L, is there any reason that the vast majority of the business should only be worth $4.3 billion?
This is the problem with conglomerates. There’s an inherent discount assigned to them because it’s hard to value them. You have specific divisions that would be worth more on their own, but you can’t realize those values. Take Dow Jones, one of its divisions, as an example. Since 2002, its revenue has grown by $227 million and its EBITDA has grown by $109 million. Dow Jones, itself, is a couple of different businesses.
Let’s take the professional information business within Dow Jones. Irenic estimated in 2022 that this division generated $700 million in revenue and $232 million in EBITDA. It has only grown from there. Let’s do some fun math. Let’s assume that Dow Jones decided to sell this business based on purely 2022 numbers. If we use a 9x revenue multiple—Preqin got 13x when it was acquired by BlackRock—then this part of Dow Jones (excluding WSJ!) would be worth $6.3 billion. And like we said, this division has grown nicely over the past couple of years, which we’ve reported on here, so it could be worth more.
Suddenly, that $4.3 billion delta between News Corp’s valuation and its Real Estate holdings disappears completely with billions of dollars in value unaccounted for. Does anyone really believe that the rest of News Corp has no value whatsoever? We’re talking about The Wall Street Journal, HarperCollins, all of its UK & US-based newspapers, Barron’s, MarketWatch, and so much more. Of course these have value!
But how much value? It’s hard to say. Irenic estimated that the business was worth $19.5 billion, but that was in 2022 using 2022’s numbers. If we use the exact same EBITDA multiples Irenic did to determine valuation and then extrapolate that to 2024’s numbers, it looks like this:
- REA Group: $11 billion
- Dow Jones: $11.5 billion
- Book Publishing: $1.9 billion
- News Media: $553 million
- Subscription Video Services: $603 million
That’s $25.5 billion and that doesn’t take into consideration the 80% of Move Inc that News Corp also owns, which Irenic said was worth $1.4 billion at the time. Let’s say that’s flat for simplicity’s sake and you’ve got a business worth roughly $27 billion. That’s $11.5 billion more than what it trades for today.
What investor wouldn’t be happy with that additional value? But with the dual class of shares, investors have no choice. The Murdochs don’t want to split up the business. For whatever reason, they are content owning this holding company worth billions of dollars less. And they have close to a majority of the vote to ensure that no one can ever force them to split up the business.
It’s possible that Irenic’s numbers were lofty. It’s possible that Dow Jones is only worth $9 or $10 billion or News Media is only worth $300 million. But the reality is, as part of a holding company, each division is held back from achieving its maximum valuation.
But could shareholders actually push News Corp to get rid of the dual-class share structure? Starboard thinks so. In its shareholder letter, it writes:
Shareholders do have a choice and will have an opportunity to make their voices heard – there is a path to achieve majority support for this proposal. We believe majority support for this proposal will send a clear and direct message to the Board to eliminate the dual-class share structure. If the Board refuses to listen, we can then take further action.
Previous proposals to eliminate the dual-class structure were soundly supported by shareholders unaffiliated with the Murdoch family. In fact, nearly 90% of unaffiliated shareholders supported a previously submitted proposal, resulting in 49.5% of total votes being in favor of eliminating the dual-class share structure.
It would certainly be interesting, to say the least!
