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Promises Broken, Shareholders Sue Murdoch

Taub Stephen | February 28, 2006

Playing with poison can be a dangerous thing. So, it seems, can be playing with a company’s promises to shareholders.

News Corp. has suffered a winter of discontent with its shareholders, as the two sides argued in court about whether the company could renege on a 2004 promise not to adopt a poison pill. Rupert Murdoch’s media conglomerate made that pledge to win shareholder support for a plan to reincorporate the company from Australia to Delaware—and then last November, renewed its poison pill for another two years anyway.

Several institutional investors promptly filed suit against News Corp., and the case is currently scheduled for trial in Chancery Court next month.

Legal issues aside, the squabble raises a fundamental question: At what price comes the flouting of promises to shareholders? If management says it will refrain from some action unless shareholders vote on it, can the company later change its mind?

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