News Corp. agrees to $139-million settlement of suit against board

Two years ago, Rupert Murdoch and other board members of News Corp. were sued by shareholders for lax oversight and alleged misdeeds within the sprawling media conglomerate.

News Corp. on Monday agreed to settle the case.

Now here’s the punch line: News Corp. will be the one collecting the $139 million settlement -- not the shareholders who brought the suit.

ON LOCATION: Where the cameras roll

Here’s how that worked out: Insurance companies that represent News Corp.’s board will make the payout on behalf of Murdoch and others on News Corp.’s board. The money will go into News Corp.’s corporate coffers.

A Delaware judge overseeing the case must approve the settlement.

The reason News Corp. is receiving the settlement, rather than the shareholders who filed the suit, is because the case is what is known as a derivatives lawsuit. In such legal matters, a shareholder sues in the name of the corporation in an attempt to remedy a wrong inflicted on the corporation itself.

In this case, shareholders sued in 2011, alleging that Murdoch and other board members had abandoned their fiduciary duty to shareholders. The complaint alleged that Murdoch and his hand-picked board turned a blind eye to the phone hacking and other criminal activities occurring within the company’s tawdry London tabloids. It also charged that Murdoch ran News Corp. as his own private empire, enriching himself and his family members at company expense.

The lawsuit was brought by lawyers representing Amalgamated Bank in New York and several pension funds that owned News Corp. shares.

An undetermined slice of the $139 million settlement will go to the law firms that handled the case on behalf of the plaintiffs. In addition, News Corp. will not use the money to issue any special dividend to shareholders.

PHOTOS: Hollywood Backlot moments

“We are pleased to have resolved this matter,” News Corp. said in a statement. “The agreement reflects the important steps News Corp. has taken in the last year to strengthen our corporate governance and compliance structure and we have committed to building on those efforts going forward.”

News Corp. admitted no wrongdoing in the case, which began after News Corp. agreed to pay $675 million to acquire the London-based TV production company owned by Elisabeth Murdoch, the chief executive’s second-oldest daughter.

Lawyers representing Amalgamated Bank sued Murdoch and other members of the board, alleging the 82-year-old media mogul operated News Corp. as his own private empire and used the company’s resources to enrich himself and family members. The $675 million acquisition of the Shine Group, Elisabeth Murdoch’s production firm, was excessive, the suit alleged.

Within a few months after the lawsuit was filed, the scandal at News Corp.’s News of the World tabloid exploded into front-page headlines around the world. Allegations of widespread phone hacking and bribery at the now-shuttered London tabloid provided more fuel to the shareholders’ lawsuit. The lawyers amended the original lawsuit against the News Corp. directors, providing details from the lurid British phone hacking scandal.

The suit contended that weak corporate governance allowed bad behavior and criminal activity to flourish within News Corp., damaging the value of the company’s stock.

News Corp. had hoped to resolve the claims in advance of its corporate split this summer. News Corp. is spinning off its newspapers and book publishing house into a separate company that will retain the News Corp. name. The entertainment division, including the 20th Century Fox film studio, television studio and profitable TV networks, will be renamed 21st Century Fox.

News Corp. said in the settlement agreement that it had taken numerous steps over the past year to strengthen and enforce its ethics standards. It also pledged to set up an anonymous hot line for whistle-blowers to call in tips about misconduct within the company.

ALSO:

News Corp. closes deal for Shine Group

Bank sues News Corp. over Shine purchase

Rupert Murdoch’s entertainment group to be named 21st Century Fox

MORE

INTERACTIVE: TVs highest paid stars

ON LOCATION: People and places behind what’s onscreen

PHOTOS: Hollywood back lot moments