Rupert Murdoch, at age 91, appears to finally be putting the pieces in place for his succession. The billionaire has asked the boards of News Corp and Fox to consider combining forces after nearly a decade apart, stitching back together the remains of his empire.
But investors are sceptical of the strategic rationale behind reuniting the companies, with some shareholders deriding the move as “family drama” and longtime Murdoch-watchers scratching their heads over the wider agenda.
Several News Corp shareholders told the Financial Times they were unconvinced that a merger was the best option, or even a positive one, and would vote against the deal unless it assigned a substantial premium to the company’s share price.
Four of these investors pointed to reputational and legal risks of being under the same roof as Fox News, the cable channel that faces two multibillion-dollar lawsuits over its anchors’ claims that the 2020 US election was rigged.
“People don’t really want to own the Fox News business, even though it’s a fantastic asset in terms of cash flow. So that limits the ability to fold [Fox] into a bigger organisation,” said a shareholder with 2 per cent stakes in Fox and News Corp. “We would definitely prefer to have these conglomerates break apart and simplify, [rather] than be put together.”
Another News Corp investor put it more plainly: “Fox News is kind of toxic and that asset should be ringfenced.”
Jessica Reif Ehrlich, analyst at Bank of America, said the proposed merger “raises more questions than answers”.
The Murdoch camp’s pitch to investors is simple: in today’s cut-throat media landscape, bigger is better for these companies which, after a round of consolidation, are tiny compared with the conglomerates that dominate the entertainment industry.
But the chief motivation for the merger is consolidating power under Lachlan Murdoch — Rupert Murdoch’s eldest son and the Fox chief executive — as Rupert’s successor, according to four people close to the situation.
“You should watch Succession. I’m not joking. But I’m kind of joking,” said one longtime adviser to the Murdochs, referring to the HBO television show about a fictional media empire.
“There’s nothing strategically, from an industry perspective, where I’m like, ‘Oh my gosh, these companies come together, it’s now going to be a much better company.’ It’s really about the family, this is what works for them. The scale is irrelevant,” the person said.
If the deal goes through, Lachlan Murdoch would most likely lead the new entity as chair, said people familiar with the matter, after a decades-long succession battle among Rupert Murdoch’s children. Two people with direct knowledge of the talks, which have gone on for months, said Lachlan Murdoch was involved in the negotiations, including holding conference calls from Australia with advisers in New York.
Robert Thomson, chief executive of News Corp, is “like a son” to Rupert Murdoch, and would likely continue running the news operation, they said.
James Murdoch, Rupert’s younger son who was previously viewed as a contender to take over the empire, declined to comment, as did a representative for Rupert and Lachlan Murdoch. Thomson had no comment beyond News Corp’s announcement that it was exploring a merger with Fox.
“The goal is to hand over everything to Lachlan in an orderly way,” said one person familiar with the matter. “Rupert is 91, time is of the essence. They need to get this sorted now.”
But while Murdoch and his family trust control roughly 40 per cent of voting shares, they need a majority of independent shareholders to vote in favour of the proposal, said people familiar with the matter. “It’s not at all a slam dunk to get the voter base to go along with this,” said a top-10 shareholder in News Corp.
Arm wrestling
Rupert Murdoch has proposed combining the company in an all-stock deal. Shareholders of Fox and News Corp want the “exchange ratio” of their shares to be given a premium above their current stock prices.
Mario Gabelli, a billionaire portfolio manager and Fox shareholder, expects “arm wrestling” between the sides over the next few months, but says that ultimately “the burden will be on the Murdochs to point out that [the deal] will add significant value to the combined company”.
Investors in Fox and News Corp view their stock market prices as chronically undervalued. They speak of the so-called Murdoch discount to shares due to the outsized influence of the family and its whims.
Pointing to the company’s spending on corporate expenses and the confusion around its hodgepodge of assets, one shareholder argues that News Corp is “basically run like the Murdochs’ family toy”.
“The Murdoch discount is very real in this case,” the person said, noting that stock analysts struggle to cover the company because it straddles such different businesses. “Most investors have said, ‘Yeah, these are good assets, but why deal with the headache?’”
News Corp shareholders believe that the sum of News Corp’s parts — which includes Dow Jones, book publisher HarperCollins and a majority stake in the Australian property listings group REA — is worth less on the stock market than the individual assets. Some shareholders want News Corp to split REA from the publishing side.
They also argue that getting involved with Fox News, America’s most watched and most controversial television channel, is not something they signed up for. “I know a number of people who won’t own Fox stock,” said a shareholder of Fox. “That is potentially challenging if you’re a News Corp shareholder, now you’re exposed to that issue through Fox.”
Despite these concerns, multiple investors and analysts say the Murdochs have a strong record of delivering returns and making shrewd acquisitions, pointing to the transformative sale of most of Fox’s assets for $71bn to Disney, a top-of-the-market deal.
That history “provides increased credibility”, said BofA’s Ehrlich, who estimates that the Fox-News Corp deal could generate more than $500mn in savings.
But since emerging from the Disney-Fox deal as a much slimmer entity, Fox’s value has shrunk by a third. MoffettNathanson analysts argue there is a “wide valuation discount” as Fox’s stock trades at a multiple of less than four times its earnings before interest, tax, depreciation and amortisation and after making certain adjustments.
‘Domino effect’
Bankers advising on the deal point to opportunities for each company’s news operations to collaborate, and ways to delve deeper into sports betting, an area that excites Lachlan Murdoch. Banding together could also help keep costs down as the US faces a potential recession next year.
But investors, analysts and even people close to the Murdochs suspect — or perhaps hope — there is more to the transaction than simply “cost synergies” or subscription bundling opportunities.
“There is usually a domino effect when KRM [Keith Rupert Murdoch] does something,” said a longtime friend of the family. “You just have to work out what the first domino is.”
“Can the Murdochs be using this announcement to seek outside bids for specific assets? We sure hope so,” said analysts at MoffettNathanson. “Our initial reaction to this combination leaves us scratching our head.”
As long as Rupert Murdoch is alive, he effectively controls the family trust due to its voting structure. But when the next generation takes over, the power to determine the trust’s position is divided equally between Murdoch’s four eldest children, while his youngest two daughters — Grace, 21, and Chloe, 19 — are also beneficiaries.
For any decision to be taken, at least two or three elder siblings will need to agree. Alliances among the siblings have shifted significantly over the years, and since the Disney deal James Murdoch has broken away from the family business. He resigned from the News Corp board in 2020, citing disagreements over “certain editorial content”, notably denial of climate change in some Australian outlets.
People close to the family say James Murdoch may still try to influence the future direction of the companies, although his options are limited while his father still controls the trust.
The Fox-News Corp situation draws an obvious parallel to that of rivals Viacom and CBS. They are both storied media empires that were split apart, only to be brought back together many years later. Viacom and CBS merged via an all-stock deal in 2019, forming a combined group that was renamed Paramount.
If Paramount offers any instruction to the future, shareholders are correct to worry. The combined group is worth $13bn today, less than half of the value of the separate groups before the deal.