Murdochs Dodge $82 Million Suit Over $72 Billion Disney-Fox Deal

Billionaire media mogul Rupert Murdoch and his sons don’t have to face a shareholder challenge to the $82.4 million in bonuses they got when selling Fox’s film and TV assets to Walt Disney Co. for $71.6 billion, a Delaware judge ruled Friday.

“The critical deficiency in the complaint is the lack of any factual allegations suggesting a causal link between the Murdochs’ receipt of the challenged compensation awards and any unfair dealing,” Chancellor Andre G. Bouchard wrote, noting that the transaction followed “a heated bidding contest between Disney and Comcast.”

In addition to the Murdochs, the Chancery Court lawsuit targeted the compensation committee of Twenty-First Century Fox, which spun off its news, sports, and broadcasting businesses into Fox Corp. last year and sold the rest of its assets to Disney a day later in one of the largest megamergers ever.

It accused the board of breaching its duties to public investors by giving Rupert, Lachlan, and James Murdoch eight-figure stock grants as part of an “incentive award” program for senior executives.

Their $11.7 billion worth of stock already gave them ample “incentive” to seek the most lucrative possible terms from Disney, the suit claimed.

It was filed by a trust that held stock in Twenty-First Century Fox until the deal, when it received stock in both Fox Corp. and Disney.

The suit originally asserted corporate waste claims on a derivative basis, meaning technically on the company’s behalf against its board. But the trust subsequently amended the suit to claim “directly"—on its own behalf, not the company’s—that Fox’s board breached its duties to investors.

Moving to dismiss the case, Murdoch and the other directors took aim at that change. While a suit over a merger itself can be direct in nature, allegations of corporate waste linked to a transaction are inherently derivative, regardless of how they’re framed, they said.

Moreover, because Fox Corp. isn’t the same company as Twenty-First Century Fox, the trust technically wasn’t a “continuous owner” with derivative standing, the Murdochs argued. It didn’t become a “new Fox” shareholder until after the stock awards were issued by “old Fox,” they said.

Bouchard agreed, although he acknowledged that the line between challenging a deal itself and alleging merger-related misconduct can be thin.

The suit “is devoid of factual allegations challenging the bona fides of the sale process” or “any facts to support a reasonable inference that the Murdochs refused to negotiate” until they got a payout, the judge said.

That makes its claims derivative, and the trust’s lack of continuous ownership dooms them, he found.

The Fox directors were represented by Richards, Layton & Finger PA and Kirkland & Ellis LLP. The trust was represented by Andrews & Springer LLC, Robbins LLP, and Purcell Julie & Lefkowitz LLP.

The case is Komen Trust v. Breyer, Del. Ch., No. 2018-0773, 6/26/20.