Rupert Murdoch, at 91, finally seems to be putting the pieces in place for his estate. The billionaire asked the boards of News Corp and Fox to consider combining forces after nearly a decade apart, rebuilding the remnants of his empire.
But investors are skeptical of the strategic rationale for the corporate reunification, with some shareholders calling the move a “family drama” and longtime Murdoch watchers scratching their heads over the broader agenda.
Several News Corp shareholders told the Financial Times they weren’t convinced a merger was the best option, or even a positive option, and would vote against the deal unless it awarded a substantial premium in the company’s share price.
Four of those investors pointed to the reputational and legal risks of being under the same roof as Fox News, the cable channel that faces two multibillion-dollar lawsuits over claims by its anchors that the 2020 U.S. election were rigged.
“People don’t really want to own the Fox News business, even though it’s a fantastic cash flow asset. This therefore limits the possibility of bending [Fox] into a bigger organization,” said a shareholder with a 2% stake in Fox and News Corp. [rather] than to be assembled.
Another News Corp investor put it more clearly: “Fox News is a bit toxic and this asset should be ring-fenced.”
Bank of America analyst Jessica Reif Ehrlich said the proposed merger “raises more questions than answers.”
Camp Murdoch’s pitch to investors is simple: in today’s media landscape, bigger is better for those companies that, after a round of consolidation, are tiny compared to the conglomerates that dominate the entertainment industry.
“The proposition is 100% based on business logic which is a combination of complementary portfolios of premium content to create a global leader in news, live sports and information,” said a person close to the Murdochs.
But the main motivation for the merger is the consolidation of power under Lachlan Murdoch – Rupert Murdoch’s eldest son and Fox’s chief executive – as Rupert’s successor, according to four people familiar with the matter.
“You should look Succession. I am not joking. But I’m kinda kidding,” said a longtime adviser to the Murdochs, referring to the HBO television show about a fictional media empire.
“There’s nothing strategic, from an industry perspective, where I’m like, ‘Oh my God, these companies are coming together, this is now going to be a much better company.’ It’s really about family, it’s what works for them. Scale is irrelevant,” the person said.
If the deal goes through, Lachlan Murdoch will most likely lead the new entity as chairman, people familiar with the matter said, after a decades-long succession battle between Rupert Murdoch’s children. Two people with direct knowledge of the talks, which have been going on for months, said Lachlan Murdoch was involved in the negotiations, including arranging 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 to lead news operations, they said.
“The goal is to get everything back to Lachlan in an orderly fashion,” a person familiar with the matter said. “Rupert is 91, time is running out. They have to fix this now.
James Murdoch, Rupert’s younger son who was previously seen as a candidate for taking over the empire, declined to comment. Thomson had no comment beyond News Corp’s announcement that it was considering a merger with Fox.
A spokesperson for the Murdochs said: ‘Any comments that imply it has to do with succession planning are nonsense and come from sources with no knowledge of strategy and intent.’ *
While Murdoch and his family trust control about 40% of the voting shares, they need a majority of independent shareholders to vote in favor of the proposal, people familiar with the matter said. “It’s not a slam dunk at all to get the voter base to accept this,” said one of News Corp’s top 10 shareholders.
Rupert Murdoch has offered to combine the company in an all-stock deal. Fox and News Corp shareholders want the “exchange ratio” of their shares to receive a premium to their current stock price.
Mario Gabelli, a billionaire portfolio manager and Fox shareholder, expects a “standoff” between the parties over the next few months, but says that ultimately “it will be up to the Murdochs to point out that [the deal] will add significant value to the combined company”.
Fox and News Corp investors view their stock prices as chronically undervalued. They talk about Murdoch’s so-called discount on stocks due to the family’s outsized influence and whims.
Pointing to the company’s spending on corporate expenses and the confusion around its mish-mash of assets, a shareholder says News Corp is “essentially run like the plaything of the Murdoch family.”
“Murdoch’s 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 said, ‘Yes, these are good assets, but why bother with the headache?'”
News Corp shareholders believe the sum of shares in News Corp – which includes Dow Jones, book publisher HarperCollins and a majority stake in Australian real estate advertising group REA – is worth less in the stock market than individual assets . Some shareholders want News Corp to separate REA from the publishing side.
They also argue that getting involved with Fox News, America’s most-watched and controversial television channel, is not something they signed up for. “I know a number of people who don’t own Fox stock,” a Fox shareholder said. “It’s potentially difficult if you’re a News Corp shareholder, now you’re exposed to this issue through Fox.”
Despite those concerns, multiple investors and analysts say the Murdochs have a solid track record of performance and sound acquisitions, pointing to the transformative sale of most of Fox’s assets for $71 billion to Disney, a high-end deal. .
This story “provides added credibility,” said BofA’s Ehrlich, who estimates the Fox-News Corp deal could generate more than $500 million in savings.
But since the Disney-Fox deal emerged as a much thinner entity, Fox’s value has shrunk by a third. MoffettNathanson analysts say there is a “wide valuation discount” because Fox shares trade at a multiple of less than four times earnings before interest, taxes, depreciation and amortization and after making certain adjustments.
Bankers advising on the deal point to collaborative opportunities for each company’s information operations and ways to go deeper into sports betting, an area Lachlan Murdoch is passionate about. Consolidating could also help cut costs as the United States faces a potential recession next year.
But investors, analysts and even people close to the Murdochs suspect — or perhaps hope — that the deal is more than just “cost synergies” or subscription bundling opportunities.
“There is usually a domino effect when KRM [Keith Rupert Murdoch] do something,” said a longtime family friend. “You just have to figure out which is the first domino.”
“Can the Murdochs use this announcement to seek outside offers for specific assets? We hope so,” analysts at MoffettNathanson said. “Our initial reaction to this combination has us scratching our heads.”
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 position of the trust is divided equally between Murdoch’s four eldest children, while his two youngest daughters – Grace, 21, and Chloe, 19 – are also beneficiaries.
For any decision to be made, at least two or three older brothers and sisters must agree. Alliances between the siblings have changed significantly over the years, and since the Disney deal, James Murdoch has parted ways with the family business. He resigned from News Corp’s board in 2020, citing disagreements over “certain editorial content”, including climate change denial in some Australian media.
People close to the family say James Murdoch could still try to influence the future direction of the businesses, although his options are limited as long as his father still controls the trust.
Fox-News Corp’s situation draws a clear parallel to that of rivals Viacom and CBS. These are two legendary media empires that were separated, to be reunited several years later. Viacom and CBS merged via an all-stock deal in 2019, forming a combined group that was renamed Paramount.
If Paramount offers guidance for the future, shareholders have reason to be concerned. The combined group is worth $13 billion today, less than half the value of the separate groups before the deal.
This article has been updated to include a quote from a spokesperson for the Murdochs, which was provided after initial publication