Saturday, 20 October, 2007, 7.20am
Dear Mayne Report subscribers and a few family and friends,
Almost 60% of the independent News Corp shareholders today backed my resolution to end the dual class capital structure at the annual meeting in New York and the issue has led some of the coverage in the international press.
Whilst Rupert and his spindoctors were attempting to play it down, you simply cannot deny the power of the numbers. This was quite a revolt, courtesy of the support from powerful proxy advisory firm Institutional Shareholder Services and the growing dislike of corporate gerrymanders amongst institutional investors.
News Corp has 985.5 million B class voting shares on issue. After some prodding, Rupert told the meeting my resolution was only supported by 22.9% of the votes cast and he feigned ignorance on the question of whether John Malone's Liberty Media had supported the board.
The statistics show that Malone did use his 188 million shares to join with the Murdoch family's 307 million shares and vote against the resolution. Saudi Prince Alwaleed Bin Talal is the next biggest shareholder with 56.3 million shares and in previous years he's loudly backed everything Rupert wants, although we can't be absolutely sure this year.
However, there were only 621 million votes against the resolution so when you back out the 495 million shares controlled by Malone and Murdoch, only 126 million independent shares have backed the board.
A total of 184 million shares supported the resolution – 59.35% of the independent shareholders - and based on Friday's closing price in Australia, these were worth $4.82 billion ($US4.31bn).
Malone has to have supported Rupert because he owns more shares than supported the resolution and more shares than didn't vote. The turnout was a very high 82%: 807 million of the 985 million shares on issue voted.
This is the first time shareholders have been able to vote on the gerrymander and the protest is substantial.
Rupert won't have Malone to back him next year when I'll be putting up exactly the same resolution, although Rupert's voting stake will rise from 30% to almost 40% as part of the Malone peace deal.
RUPERT'S SHAMBOLIC AGENDA
After chairing the last 20 News Corp shareholder meetings since Richard Searby was dumped as News Corp chairman in 1991, Rupert Murdoch really hasn't learnt much about process and protocol.
The meeting was supposed to consider the following eight resolutions in this order:
1. Re-election of Rupert Murdoch
2. Re-election of Peter Barnes
3. Re-election of Ken Cowley
4. Re-election of David DeVoe
5. Re-election of Viet Dinh
6. Appointment of Ernst & Young as auditor
7. Evelyn Davis proposal on annual election of directors
8. Stephen Mayne proposal on elimination of dual class capital structure
The conventional approach would be to deliver a 20 minute chairman's address and then progressively move through the eight agenda items one at a time.
Not for Rupert, he prefers to deliver his chairman's address at the end of the meeting after the formal business has been dealt with.
And rather than dealing with the resolutions sequentially, Rupert decided to start with the shareholder resolutions, so within 6 minutes of calling the meeting to order, Evelyn Davis was on her feet raving about all manner of things.
Rupert claimed Evelyn and I would be limited to just 2 minutes, but it was almost 11 minutes before she sat down after she had surfed over terrain covering John Malone, Dow Jones, Fox Business channel and various other topics.
Without any warning before the meeting, I was then called to argue the case for resolution eight at 10.17am. Talk about getting ambushed. This debate should have happened at least an hour into proceedings.
At first Rupert resisted disclosing the proxies but then he confessed that almost $5 billion worth of stock had voted against the board and wanted to give all shareholders the vote, rather than just 30%. You can listen to the five minutes of exchanges on the webcast starting at 17 minutes.
At no point during the meeting did Rupert offer any defence of his gerrymander, but when asked by ABC reporter Michael Rowland in the later press conference, he said it provided stability that allowed the board to take bigger risks and a longer term view.
WHERE THE PROTEST RATES IN HISTORY
Here is a list of the board-endorsed News Corp resolutions which have received "against" votes in excess of 20% since 2000:
Options to non-executive directors in 2003: Withdrawn after majority of proxies against Murdoch family couldn't vote.
Poison pill extension in 2006: For 454m, against 339m (42.74%)
Options to executives in 2000: For 392.7m, against 253.43m (39.22%)
Options to executives in 2002: For 472.57m, against 260.78m (35.56%)
Options to non-executive directors in 2002: For 472.57m, against 236.19m (33.32%)
Evelyn Davis on annual elections in 2006: For 196.8m, against 405.8m (32.65%)
Pay rise for non-executive directors in 2005: For 333m, against 133m (30%)
Re-election of Lachlan Murdoch in 2006: For 633m, against 202m (24.19%)
Stephen Mayne on gerrymander in 2007: For 184m, against 621m ( 22.9%)
Options for Rupert Murdoch in 2000: For 478.47m, against 112m (20.32%)
Options to executives in 2001: For 501.77m, against 134.26m ( 21.11%)
JOHN MALONE GOES OUT WITH A WHIMPER
Many of the above figures are very much influenced by the presence of John Malone's Liberty Media with a 19% voting stake in News Corp since 2004.
The partial conversion of Malone's non-voting shares into 188 million voting shares at the time of the move to America sent Rupert Murdoch into apoplexy such that he introduced an outrageous poison pill in November 2004.
Rupert's ultimate nightmare is being voted off the News Corp board but it is interesting to see how Malone has actually voted his stock over the past three years.
At this morning's AGM he voted with Rupert on every resolution, including the Sun King's own election, which sailed through with 99.5% support.
All the directors got more than 99% in favour this morning, but last year was a completely different story with the against votes ranging between 199-203 million or around 24%.
This was because ISS recommended shareholders withhold their votes for directors as a protest against the extension of the poison pill. Malone voted in favour of the directors last year but against the poison pill extension which explains why the poison pill was a close run thing in 2006 with 42.74% voting against it.
Back in 2005, when emotions were still running high, Malone voted in favour of all resolutions, just like he has in 2007.
So, the sum total of the bogey man's protests against the board in three years has been one vote against the extension of the poison pill in 2006.
When Evelyn Davis told Rupert to stop worrying about Malone, the Sun King replied that he had billions of dollars in reserves. Truth be known, Rupert is personally worth about three times what Malone is and News Corp is much bigger than Liberty Media.
Whilst Malone voted against the Evelyn Davis resolution requesting annual elections of all directors today, last year he abstained on this one, which partly explains why Davis got an impressive 32.65% in favour last year and only 17.27% this year.
The reason my resolution attracted 184 million votes in favour and Davis only scored 139 million today is probably because annual board elections do nothing for shareholder value but having just one class of share would definitely cause a re-rating of the stock.
THE MYSTERY OF RUPERT'S ELECTION RECORD
The most bizarre episode today related to the simple question of the historical record about Rupert's previous elections to the board.
I emailed News Corp company secretary Laura O'Leary earlier in the week to give them this one on notice and the strategy they adopted was simply strange.
For starters, Rupert failed to vacate the chair when it came to his own re-election, something which is common practice in Australia.
Rather than dealing with the five different director elections one at a time, he attempted to declare voting open for all them simultaneously before even asking for elections.
You really should listen to this fiasco starting at 28 minutes. When I finally managed to gain permission to ask questions about Rupert's own re-election, we had a big struggle over these five words: "when were you last elected?"
At first, Rupert deferred to general counsel Lawrence Jacobs who explained that he was re-elected as part of the move to America in 2004.
This was news to me and I pointed out that Rupert claimed he "didn't know" when I asked him the same question in 2005.
The strategy here was clearly to claim the American move constituted a re-election, but this didn't happen at an AGM so I asked when Rupert was last re-elected at a regular AGM.
His response: "Can you answer that Mr Jacobs?"
It was at this point that Arthur Siskin, the former group general counsel who Rupert has hailed as "the best lawyer in New York", got up from the front row and declared that Australian CEOs don't have to be elected.
"He was never required to stand for election and you know that, so don't ask silly questions," said Arthur.
I then pointed out that only CEOs are exempt and every other prominent executive chairman in Australia such as Gerry Harvey, Kerry Stokes, David Clarke and James Packer all subject themselves to election.
At this point, they caved with no response, but we still didn't get an answer to the historical question so it could well be true that Rupert has never been properly re-elected before in the company's 55 year history.
I told him towards the end of the meeting that 99.5% showed that shareholders had great confidence in him and he should take that as a mandate to unwind the gerrymander.
No one would sack him or take over News Corp, so why hide behind this embarrassing undemocratic façade?
Alas, given the way Rupert was shafted when his own father died in October 1952, there's little prospect he'll give an inch on the question of retaining family control after he is gone.
We'll have analysis over the next couple of days, but that's all for now.
Do ya best, Stephen Mayne
Copyright © 2020 The Mayne Report. All rights reserved