Irenic's News Corp activist deck

SOTP-GLTA-TGIF

Irenic Capital Management launched a public press campaign as an activist shareholder in News Corp - a controlled company - on Monday of this week:

Irenic is a newly formed fund that is run by a pair of very talented investors. After reading this I tweeted (obnoxiously):

“Irenic going after NWSA is that thing where you get to the playground and punch the toughest guy you see. this is a controlled company gents! GLTA!”

News Corp is a controlled company (the Murdoch family control >40% of voting power at both NWS and FOX). The typical activist might normally target a company where change of control might be possible and an ousting of management was on the table: not so in either case here. However, the angle here is not to compel action, but rather dissuade the current course of action (NWS is contemplating a reunification with FOX). Some funny quotes from current management, as recently as 2019, on why the exact opposite transaction (NWS separating from FOX) was such a genius move:

It should be said that Irenic’s work is fantastic, the stock is genuinely undervalued, and that scrapping the thing for parts would probably double equity investors money (stock is at ~$18/sh as of this writing):

I’ve written in the past on why sum-of-the-parts valuations are useful, but remain flawed when entrenched management is involved. “Don’t touch an asset trading below NAV until the 13/D is filed, or management is changed” is still a good rule of thumb. Is what Irenic doing tantamount to a 13/D or change in management? Their ask, boiling down their work into a few line items, sort of reads as follows:

• This recombination with FOX is nonsense, will destroy value, just don’t do it. Dilutes the quality of the business and very transparently serves the interests of the Murdoch family. This is doable- a special committee has been formed to evaluate the merits of the transaction, and that committee has a fiduciary duty to NWS shareholders

• Do some Liberty Media-esque tactics to spin-out the REA & Move, Inc. (digital real estate businesses) stakes into a spinco, surface the value and leave the higher quality/more predictable businesses at remainco to get a better multiple and avoid taxation. High degree of difficulty but probably the best course of action

• Do both of these things while still somehow making the Murdoch family whole (at least in their minds) and bailing out the declining FOX businesses

It seems Irenic is trying to implement some governance from minority holders at a company that may or may not be a rudderless ship. If investors, who have been historically been coached into believing “what’s best for Rupert is best for us” can change their tune, it might be a fantastic value opportunity, without a 13/D and without a management change!

What’s made obvious by Irenic is that NWS has some stellar underlying businesses that are clearly not valued correctly by the market. Control is destroying value, as has been the case at other media conglomerates trading below their SOTP. This might be a case where that control discount could be eliminated with proper governance mechanics. If the special committee finds the merger to be value destructive, and the Murdoch family actually listen, we might see a complete re-rating of the asset.