News Corp Investors Raise Concerns About Proposed Merger With Fox

An activist investor escalated its pressure on News Corp on Sunday, asking it to reconsider a proposal by Rupert Murdoch to combine the two parts of his media business, News Corp and Fox.

The investor, Irenic Capital Management, said in a letter to News Corp, which was viewed by The New York Times, that it might vote to oppose the merger, arguing that the proposed deal is likely to undervalue News Corp.

“We want to be clear: Walking away from a potential transaction is better than agreeing to a deal that fails to maximize News Corp’s value,” Irenic said in the letter, which was addressed to the special committee of independent board members evaluating the merger proposal.

Irenic owns about 2 percent of News Corp’s class B shares, according to the letter. Those shares confer stronger voting rights than the more numerous Class A shares.

Along with the letter, Irenic sent an email asking to meet with the special committee to share its views and those of other shareholders.

It’s the second time Irenic has requested a meeting. Last month, Irenic did so as it urged News Corp to explore splitting its online real estate listings unit from its other businesses, including The Wall Street Journal, HarperCollins and The New York Post. It said in its letter on Sunday that it also wants News Corp to consider spinning off its Dow Jones media properties. The firm contends that News Corp’s stock, now trading at $18 a share, could be worth $34 a share. It is being advised by executives including Jon Miller, a former chief digital officer of News Corp.

The letter is aimed at putting pressure on the special committees that both Fox and News Corp have appointed to evaluate Mr. Murdoch’s proposal. He has significant say in the matter: The Murdoch Family Trust, which Rupert Murdoch controls with his eldest children, commands roughly 40 percent of the vote at both Fox and News Corp through its more powerful Class B shares. But any deal requires the approval of a majority of investors who are not part of the Murdoch trust.

Irenic isn’t the only News Corp investor raising questions. Will Granger of Airlie Funds Management said in an interview that he wasn’t convinced the two companies would be better together.

“We don’t see much of a commercial rationale for the deal,” Mr. Granger said. “Does The Wall Street Journal gain by having Fox attached to it? That’s not obvious to me.”

Airlie owns a small stake in News Corp’s total share base, Mr. Granger said. His argument was similar to Irenic’s, saying Airlie would not support a merger unless Fox paid a significant premium to News Corp’s stock price or did another deal at the same time, like selling off News Corp’s real estate business.

News Corp’s largest minority shareholders, T. Rowe Price and Vanguard Group, which collectively own about 20 percent of the company’s Class A shares, did not respond to a request for comment.

News Corp declined to comment.

The deal between News Corp and Fox, if it goes through, could put a collection of news and entertainment assets including Fox News, The Wall Street Journal, the Fox broadcasting network and TMZ under the same corporate umbrella. Mr. Murdoch has said he sees cost-saving and moneymaking opportunities in joining the two companies, including ways to use the company’s assets for emerging business lines across the two companies, such as sports betting.

Since the two companies split in 2007, the industry has gone through a wave of consolidation to compete with streaming giants like Netflix and combat the decline of the traditional TV business.

“Scale is important,” Lachlan Murdoch, the chief executive of Fox and Rupert Murdoch’s oldest son, said in November. “Scale lends flexibility in many ways.”

The proposal would split ownership among stockholders based on the market value of each company, though it did not suggest a proposed valuation for the companies.

The move took some in the media industry by surprise, since Rupert Murdoch had once argued that his assets were better off in separate companies.

In a note to investors last month, the analyst firm MoffettNathanson said that it expected Fox might sell someday, “just not like this!” The note said MoffettNathanson was concerned that the collection of assets could confuse investors, affecting the value they place on a combined company.

Shares of News Corp are down about 20 percent over the past year, giving it a market valuation of $10 billion. Shares of Fox are also down about 20 percent, giving it a market valuation of $16 billion.

Benjamin Mullin contributed reporting.