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Fox and the voting shares discount



When does the right to vote have a negative value, and why?

Shares in one of Rupert Murdoch's concerns, Twenty-First Century Fox Inc., are divided into voting and non-voting classes. Both represent an equity interest, so both are inferior to debt in the event of a restructuring or litigation.

The reason for the division is that Murdoch and his family want to maintain control, yet they don't want to have to own as large an equity share as they would need in order to do so. The two class share structure allows him effective control of the company, with 39.7% of the voting rights, even though he (and his family) have a total of only 12% of the equity. Twelve percent is still a large chunk of a corporation, but dissidents could conceivably challenge Murdochian control if both classes of stock were equity, challenges that are cut short since he controls almost 40% of the shares that count for purposes thereof.

My curiosity is piqued, though, by the fact (a recent turn of events) that the voting shares are selling at a considerable discount to the non-voting shares. Major investors apparently are demanding the opportunity to turn their voting shares in for non-voting shares, as a simple arbitrage play in the face of the discrepancy. Reuters reporters are citing unnamed "people familiar with the matter"  who say that certain investors, including representatives of "major hedge funds," have met with Fox management in recent years to discuss convertibility. In effect, they are trying to convince Murdoch to accept an even larger share of the voting rights than he already has.

I don't blame hedge fund managers for seeking a quick risk-free profit when an opportunity for doing so, untainted by public subsidy, presents itself. But, not having researched the situation properly yet, I am eager for a good explanation as to how this opportunity arose. How did voting rights in this company come to have literally negative value?

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