A Delaware judge has ruled that a trial against the News Corporation can proceed in a lawsuit filed by 13 institutional pension funds that accused the company of reneging on an agreement to let shareholders vote on a takeover defense.
Last year, the News Corporation promised shareholders that, in exchange for their approval of the company's move to Delaware from Australia, any poison pill adopted after the move would be allowed to expire in a year unless shareholders voted on an extension.
A poison pill makes a hostile takeover of a company prohibitively expensive by increasing the number of shares to be acquired.
Shortly thereafter, the Liberty Media Corporation increased its News Corporation stake to 17 percent, and the News Corporation adopted a poison pill.
Last month, the media and entertainment giant extended the pill for two more years "without a shareholder vote, in contravention of the board policy," court papers say.
The 13 investor plaintiffs, who manage $300 billion in pension funds in Australia, Britain, the United States and the Netherlands, sued the News Corporation on five charges ranging from breach of contract to fraud.
The News Corporation asked that the case be dismissed, saying board policy was not irrevocable and could therefore be changed. The company, whose chairman, Rupert Murdoch, owns 30 percent of the voting stock, owns controlling interests in Fox TV, DirecTV, 20th Century Fox and newspapers including The New York Post.
But Chancellor William B. Chandler III said he would keep the breach of contract claims and dismiss charges of fraud, misrepresentation and breach of fiduciary duty.
In a 26-page opinion released on Tuesday, he said, "If a board enters into a contract to adopt and keep in place a resolution (or a policy) that others justifiably rely upon to their detriment, that contract may be enforceable, without regard to whether resolutions (or policies) are typically revocable by the board at will."
But the judge also expressed reservations about why sophisticated investors, like the Dutch government's giant Stichting Pensioenfonds APB, had failed to negotiate "enforceable agreements to protect their interests."
In a hearing last month, the plaintiffs said that in negotiating the protections of their rights, they had relied on the assertion by Ian Philip, the general counsel of the News Corporation, that a board policy was the only practical vehicle at the time and that a more secure amendment to the charter "was impractical because there was not enough time" before the relocation to Delaware.
The lawyer for the plaintiffs, Stuart Grant, said in a telephone call: "From the very first day, all we said was they made a promise and they have to keep it. And the court now says that all we have to do is prove that News Corporation made a promise. The result will be that we win and the pill will be struck down as invalid."
A spokesman for the News Corporation, Andrew Butcher, said, "We won't have any comment until we've properly reviewed the decision."
Mr. Grant said he expected a trial to start in February or March.
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