By Svea Herbst-Bayliss

NEW YORK (Reuters) – Hedge fund Starboard Value has filed a shareholder resolution to eliminate the dual-class shares that enable Rupert Murdoch to control News Corp (NASDAQ:NWSA), publisher of the Wall Street Journal, according to sources familiar with the matter.

Starboard’s action arises as the 93-year-old media tycoon engages in a legal battle with some of his children to ensure that his son Lachlan Murdoch will lead News Corp and the broadcasting giant Fox Corp after his death.

The resolution proposed by Starboard would not be binding on News Corp, and the company could attempt to block it from being voted on at its upcoming annual shareholders’ meeting.

Nevertheless, this move directly challenges Murdoch’s dominance over the media conglomerate. Although he has successfully navigated such challenges before, this is the first since he withdrew from an active role by resigning as board chair last year.

In October, Starboard urged News Corp to spin off its digital-real estate unit to unlock shareholder value, shortly after reports emerged of the activist investor accumulating a stake in the company.

Now, Starboard has privately filed a resolution advocating for the removal of News Corp’s dual-class stock structure, which currently grants Murdoch 40% of the voting shares despite owning only about 14% equity.

Starboard Value, led by Jeffrey Smith, is a prominent activist investor that has recently campaigned for changes at companies like Match Group (NASDAQ:MTCH), Autodesk (NASDAQ:ADSK), and Salesforce (NYSE:CRM).

As of June 30, Starboard held 7.2 million Class A shares in News Corp, equating to a 1.9% stake, along with 8.7 million Class B shares, according to regulatory filings.

Sources requested anonymity due to the confidential nature of the matter. News Corp did not respond to comment requests, and Starboard could not be reached for comment.

Since founding News Corp in 1980 as a holding company for his media empire, Murdoch has strictly controlled the company’s governance.

While companies are not obligated to follow the outcomes of shareholder resolutions, many do if they receive substantial voter support. A company’s disregard for an endorsed proposal can lead to reputational harm and signal to shareholders and advisory firms that the board is not considerate of significant shareholder concerns, as noted by law firm Covington & Burling last year.

Murdoch has historically overlooked such votes, even when they have garnered support from two-thirds of voting shareholders not linked to him or his family.

This would mark the first vote since Lachlan Murdoch succeeded his father as chairman of News Corp. The company would have to justify to shareholders why the Murdoch family should maintain control despite the founder’s absence.

It remains uncertain whether News Corp will request that the U.S. Securities and Exchange Commission (SEC) exclude Starboard’s proposal from its annual meeting agenda, which is anticipated in the fall.

Companies regularly petition the SEC to block about half of the shareholder proposals they receive, and the SEC has approved over two-thirds of these requests, according to the law firm Skadden, Arps, Slate, Meagher & Flom. The SEC can deny a proposal if it agrees with a company that it would constitute micromanagement or violate legal stipulations.

RESISTING BREAK-UP

News Corp is currently valued at approximately $15.3 billion with its stock price increasing by 25.5% over the past year. The company’s portfolio includes a real estate listing business, Harper Collins book publisher, and various newspapers, such as the Wall Street Journal, the New York Post, and Britain’s Times and Sun.

Murdoch’s other significant media venture, Fox News, is separately held by Fox Corp, stemming from the division of publishing and broadcasting assets in 2013.

Starboard has contended that News Corp is undervalued relative to its assets and suggested spinning off some components. It claims that separating the Dow Jones from the real estate division could unlock upwards of $7 billion in value.

However, News Corp has consistently resisted such proposals. Earlier this year, it reported fourth-quarter revenues and profits that surpassed Wall Street estimates, fueled by strong performance in its Dow Jones unit and solid results from its real estate and book publishing sectors.

Previously, Murdoch abandoned a merger proposal aimed at reuniting News Corp and Fox Corp after significant resistance from leading shareholders.