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 Fox's dual-class share structure already gives the 83-year-old media
mogul control over 39.7 percent of voting rights, even though he and
his family hold only a 12 percent equity stake.
Several Fox investors, which collectively own 8 percent of voting
rights, have been unhappy about the relative performance of their
shares since the company delisted from the Australian stock exchange
last May, the people said.
Historically, the voting shares had traded at a premium. In the five
years before the delisting, the Class B shares, which carry voting
rights, traded at an average premium of 6.2 percent over the
ordinary Class A shares. But the delisting caused some Australian
institutional funds to sell their B shares, which now trade at a 3
percent discount to the A shares.
Frustrated with the gap, several top Fox shareholders have met with
management in recent months to press for amendments to the company's
charter to allow voting shares to be convertible into ordinary
shares, according to the people, who requested anonymity as the
discussions are private.
They said the investors, which include major hedge funds, believe
conversion rights would push up the value of the B shares, pointing
to CBS Corp and Comcast Corp as examples. The voting shares of both
companies can be converted and they trade at a premium to ordinary
shares.
Some of the Fox investors plan to take their proposals to the next
annual general meeting, expected in the fall, said the sources
familiar with the matter. Changing Fox's charter would require
approval from a majority of shareholders with voting rights.
It is unclear how much support there would be for this campaign. A
Fox spokesman declined to comment.
At least two major institutional investors said they had no desire
to convert their shares and lose voting rights. Other shareholders
may be wary that conversion would leave Murdoch with an even bigger
share of the remaining voting shares.
In the past, some pension funds and shareholder proxy advisors have
criticized Murdoch's command over his media empire, and pushed to
separate his chairman and chief executive roles, among other things.
Fox, which owns the Twentieth Century Fox film studio as well as
broadcast and cable television networks, was spun off from News Corp
in 2013 amid shareholder pressure surrounding the phone hacking
scandal involving Murdoch's newspapers in Britain. (News Corp's
voting shares are also not convertible into ordinary shares.)
Following the split, Fox chose to delist from the Australian stock
exchange, in part to cut compliance costs and consolidate trading on
the Nasdaq to boost liquidity in the U.S. market.
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The move forced Australian institutional funds that are not
permitted to own foreign-listed securities to wind down their
positions in Fox. That process is still going on, and has taken
longer than some investors expected, people familiar with the matter
said.
Adding to the pressure, the voting shares have not so far been
accepted on any S&P Dow Jones indices, whereas the ordinary shares
have. S&P Dow Jones said the voting shares will be indexed in
September, which would open them up to index mutual funds, exchange
traded funds and index portfolios - that could help the voting
shares rebalance.
Fox's ordinary A shares have risen 3.8 percent over the past six
months to $33.58, while the voting B shares have gained 2.7 percent
to $32.57. The average A share trading volume per day is about 12
million shares, versus the B share volume is 4 million shares. There
are 1.4 billion A shares and 800 million B shares.
Some top Fox investors are willing to give up their voting rights
because Murdoch already holds a controlling stake, the sources said.
Even if Murdoch's voting rights increase, these funds believe it
would not change the way the business is run.
"Once you own the controlling block that he does, the vote is not
worth a terrible lot," said one of the sources.
As for ordinary shareholders, the prospect of convertibility could
be an overhang on the common shares, said Eddie Best, a lawyer
specializing in capital markets at Mayer Brown LLP.
Class B "shareholders are unlikely to exercise their conversion
rights if they don't have plans to sell," he said.
As for ordinary shareholders, "they might not love it but they might
not have a choice," Best said.
(Reporting By Nadia Damouni and Liana Baker; Editing by Tiffany Wu)
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