News Corp.’s Unprecedented Voting Right Move Puts It Beneath FCC Foreign Ownership Limit
News Corp.’s unprecedented step to suspend some shareholders’ voting rights puts it again beneath FCC ownership limits that were exceeded when the company’s foreign-investor base expanded in recent years. The company said Wednesday it immediately put on hold the rights to vote on matters for half of the portion of a class of stock that’s held by non-U.S. citizens and carry more votes than regular shares. The move means foreigners will no longer exceed the commission’s 25 percent threshold on the portion of voting power foreigners can exercise in the broadcaster, the owner of 27 Fox and MyNetworkTV stations (http://xrl.us/bm4ebg) said.
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No other U.S.-based company has made such a move to comply with a regulation in the collective memory of a broadcast lawyer, industry executive, stock analyst and securities-law professor who each have been in their profession for decades. The suspension of rights to vote some Class B shares means News Corp.’s Fox Television Stations won’t have to tell the commission June 1 that WTTG (Fox) and WDCA (MyNetworkTV) Washington and WUTB (MyNetworkTV) Baltimore are controlled by a company exceeding foreign-ownership limits. That’s when license renewal applications are due for those and all other TV stations in the District of Columbia and Maryland (http://xrl.us/bmjp6i). News Corp. “initiated a review of the foreign ownership of its common stock in connection with the regular preparation of its television station renewal applications,” the company said (http://xrl.us/bm4ede). A Media Bureau spokeswoman declined to comment.
News Corp. seemed to have anticipated such a situation would arise, because its corporate charter (http://xrl.us/bm4eey) includes scenarios where voting rights might change based on circumstances that could be construed to include violating FCC ownership limits, said Professor Lawrence Hamermesh of Widener University. “They clearly anticipated this -- they're not just making this up -- it’s built into their charter” in “a long provision which perhaps most people don’t actually pay much attention to,” he noted. “It’s clearly and sensibly designed.” Hamermesh couldn’t recall any U.S. company suspending voting rights except for the rare case involving an attempt to thwart a takeover. News Corp.’s move is “a very aggressive, but not by any means ridiculous use of a statutory power” under the company’s corporate charter “which I think is the only way to meaningfully respond to the problem that arises from excessive foreign ownership as a matter of FCC law,” he said.
The move won’t affect control the family of News Corp. Chairman Rupert Murdoch can exert, since he’s a U.S. citizen and the trust that owns the family’s 39.7 percent of all outstanding Class B shares isn’t considered foreign. Murdoch and his family’s trust agreed “not to vote or provide voting instructions with respect to a portion of the shares of Class B Common Stock they own during the voting rights suspension period, to the extent that doing so would increase their percentage of voting power from what it was prior to the suspension,” News Corp. said. A major foreign owner of Class B shares is Saudi Prince Alwaleed bin Talal, an industry executive and Hamermesh noted.
The move speaks to the “chronic problem” big companies like News Corp. have in “tracking the precise extent of alien ownership” at any particular time, said lawyer Harry Cole of Fletcher Heald, which has TV station clients. “Whatever their normal monitoring practice might be, it would certainly make sense for them to undertake a thorough alien ownership audit as their license renewal deadline approaches, in order to be sure that they will be able to certify properly to the alien ownership question in the renewal form,” he said. “That appears to be exactly what happened here.”