Rupert Murdoch's News Corporation is being sued by shareholders for "paying for nepotism" in its $675m deal to buy daughter Elisabeth Murdoch's production business Shine.

Shareholders the Amalgamated Bank of New York and the Central Laborers Pension Fund filed a lawsuit on Wednesday in a Delaware court alleging that the deal was a case of "nepotism" and that the board of News Corp failed to question or challenge Rupert Murdoch.

The deal, which following regulatory approval is expected to close on 31 March, will see 42-year-old Elisabeth take a seat on the News Corp board.

"In addition to larding the executive ranks of the company with his offspring, Murdoch constantly engages in transactions designed to benefit family members," said the lawsuit by Amalgamated Bank, a trustee for several investment funds.

The lawsuit accuses Rupert of treating News Corp "like a wholly owned family candy store" and argues that a fair price was not achieved for Shine.

"Although the transaction makes little or no sense for News Corporation and is far above a price any independent, disinterested party would pay for Shine, it is unsurprising that the transaction was approved by News Corporation's board," lawyers for Amalgamated Bank said in the filing.

Amalgamated Bank, a trustee for several investment funds, holds about 1 million shares or 0.003% of News Corporation stock. It is understood that this is the third time the bank has taken action against the board in recent years.

The lawsuit seeks damages and a declaration the board breached their fiduciary duty to shareholders. A spokeswoman for News Corp said that the lawsuit was "without merit" and added that Shine is a "very attractive business" that fits with the company's entertainment portfolio.

The acquisition, which was engineered by bank JP Morgan, still needs approval by News Corp's audit committee and the approval of the two companies' boards. It also requires an independent fairness opinion.

Founded by Elisabeth Murdoch in 2001, Shine has become one of Britain's largest independent production companies as a leading producer of such reality shows as The Biggest Loser, MasterChef and One Born Every Minute.

According to the first figures available on the performance of Shine in 2010 – to date only Companies House numbers from 2009 have been available – the production company increased turnover by 50% from £265m to £396m.

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