(CN) - Stockholder-approval duties for Twenty-First Century Fox's predecessor, News Corp., do not extend to a subsidiary that carries on the News Corp. name, a judge ruled.
The duties stem from a settlement that so-called Old News Corp. reached with shareholders in 2006, agreeing to submit its shareholder rights plan to shareholders for approval each year for a period of 20 years.
When Old News Corp. renamed itself Twenty-First Century Fox, with a focus on its broadcast media business in 2013, it spun off its newspaper business into a wholly owned subsidiary, described in the court records as New News Corp.
New News Corp. adopted a one-year shareholder rights plan in 2013 with shareholder approval, but did not seek approval to extend that plan in 2014.
Shareholders told the Delaware Chancery Court that New News Corp remains bound by the terms of the settlement agreement as an assignee of Old News Corp.
Chancellor Andre Bouchard disagreed Tuesday, however, finding that only Twenty-First Century Fox is bound by the agreement, not its new subsidiary.
"It is not reasonably conceivable that New News Corp is bound by the rights plan restrictions of the settlement agreement because, under the only reasonable interpretation of the settlement agreement and the separation and distribution agreement, Old News Corp's rights and obligations under the Settlement Agreement were not transferred or assigned to, or otherwise assumed by, New News Corp," the chancellor wrote.
The shareholders' interpretation of the agreement would "paralyze" Old News Corp from engaging in modest asset transfers due to the attending transfer of contract restrictions, the 33-page opinion states.
"Plaintiff's interpretation would mean that were Old News Corp to sell some of its film equipment to, say, CBS Corporation, CBS would be a 'transferee' of Old News Corp's assets within the meaning of the settlement agreement such that CBS would thereafter be bound by the rights plan restrictions of the Settlement Agreement," Bouchard said. "Similarly, under plaintiffs' interpretation, if Old News Corp were to sell five television trucks to five different public entities, each of those entities would become subject to the rights plan restrictions of the settlement agreement."
Such a result would be "absurd," the chancellor said.
Bouchard concluded with the note that "nothing in this decision relieves Old News Corp, now operating as Twenty-First Century Fox, Inc., from performing under the Settlement Agreement."
"It continues to be bound by those obligations, including the rights plan restrictions set forth therein," he added.
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