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Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

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Despite the News Corporation (ASX: NWS) share price getting a 31% bump between November last year and today, News Corp is not an ASX company you hear too much about these days. To understand why that is, lets take a closer look at the company structure and what they have been up to lately. 

News Corp is a rather interesting company. It’s listed on the ASX under the ticker symbol NWS and is also listed over in the United States, on the Nasdaq exchange.

Additionally, News Corp has another interesting characteristic: it has two classes of shares.

News Corp Class A and News Corp Class B

There’s News Corp Class A (NASDAQ: NWSA) and News Corp Class B (NASDAQ: NWS). The ASX-listed variation is actually a Chess Depository Interest (CDI), which basically means it is the same stock as News Corp Class B on the Nasdaq.

Why two classes of shares?

Well, over in the States, dual-class structures are legal and accepted (unlike on the ASX). It gives a company’s founders or management the ability to dilute their economic holdings of a company without diluting their ownership.

Let me explain.

In News Corp’s case, the Class B shares get a single vote over the management of the company, just like any ASX share entitles the owner to. The News Corp Class A shares, however, do not come with that vote. They are equal in terms of economic value, but unequal in terms of voting power.

This structure enables the owners of large tranches of Class B shares to maintain their control of the company by ensuring that a large shareholder base gets no voting power.

News Corp is not the only company to employ such a structure. Other prominent examples include Alphabet Inc (NASDAQ: GOOG)(NASDAQ: GOOGL), Facebook Inc (NASDAQ: FB), and even Warren Buffett’s Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B).

But I digress…

News Corp’s complicated history

News Corp is most famous for being majority-owned by Rupert Murdoch and the Murdoch family. The company owns the Murdoch print assets like The Wall Street Journal and Australia’s The Daily Telegraph, Herald Sun, and The Courier Mail. It also owns a range of other assets, including a large stake in REA Group Ltd (ASX: REA) as well as the Foxtel Pay TV business.

However, the business used to be a lot larger.

Back in 2013, News Corp spun out most of its media assets, including 21st Century Fox TV and Film and Fox News, into the 21st Century Fox Company. In 2019, the Walt Disney Co (NYSE: DIS) bought most of 20th Century Fox’s television and film assets, which included iconic brands like The Simpsons.

However, 20th Century Fox kept its television assets like Fox News. Subsequently, the company rebranded to Fox Corporation (NASDAQ: FOX)(NASDAQ: FOXA). Note the retainment of the dual-lass structure.

Today, both News Corp and Fox Corp are still majority-owned and run by Rupert Murdoch and his family. This brings us to a predicament for News Corp shareholders.

There’s one in every family…

Fox isn’t the most popular company right now, even in the Murdoch family itself. Reporting from the Australian Financial Review (AFR) this week told us that James Murdoch, son of Rupert, has publicly criticised the company for a perceived role in the riots at the US Capitol building earlier this month. The AFR states that Mr. Murdoch was asked whether Fox News had played a role in the riots.

Fox is a dominant and conservative news network in the US. Mr. Murdoch reportedly responded by saying that “media groups had amplified election disinformation, leaving ‘a substantial portion’ of the public believing ‘a falsehood'”.

He went on to state the following:

The damage is profound… The sacking of the Capitol is proof positive that what we thought was dangerous is indeed very, very much so. Those outlets that propagate lies to their audience have unleashed insidious and uncontrollable forces that will be with us for years… I hope that those people who didn’t think it was that dangerous now understand, and that they stop.

James Murdoch used to be the Chief Executive of the old 21st Century Fox. He famously cut ties with the family business in August when he resigned from the News Corp board. James Murdoch reportedly cited “disagreements over certain editorial content” as the reason.

Should News Corp shareholders be worried?

So how does this affect News Corp shareholders?

Well, in this business, reputation can be a powerful force. If there does happen to be more fallout over the role that Fox News played in the recent incidents at the US Capitol, it could have unforeseen consequences.

Remember, both companies are controlled by the same large shareholders, namely, the Murdoch family. The AFR report tells us that James Murdoch stated that he is “praying for people to come to their senses” and talked of a “reckoning” for the media industry.

Those words from a former board member would make any News Corp shareholder worried, I’d wager.

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Sebastian Bowen owns shares of Walt Disney. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Walt Disney. The Motley Fool Australia has recommended REA Group Limited and Walt Disney. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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