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Mayne: demerger gives Rupert whip hand on dynastic carve-up

Always remember this: Rupert Murdoch loves newspapers and is a control freak who fanatically obsesses about sustaining his family’s powerful dynasty. Therefore, his belated embrace of a publishing demerger should be viewed as an opportunity to shore up the family’s control over key assets and succession.

For all this talk of Chase Carey winning the internal argument, the baseball-loving American’s power has actually been reduced. Rupert Murdoch turns 82 next March and shortly thereafter he will become executive chairman of the separated entertainment business, with Carey remaining as his clear understudy at a smaller business.

At the moment, News Corp lists 16 directors on its website, although long-time corporate adviser Stan Schuman is “director emeritus” who doesn’t face annual election. Rather than facing a board coup over the phone-hacking scandal, Rupert has now created a unique opportunity to shuffle the deck on family succession and hand pick  future non-executive directors who agree to family dominance.

Those who talked of corporate governance reforms could well find themselves on the outer.

For starters, you would expect Elisabeth Murdoch, who was paid $US1.7 million last year to manage the successful Shine television production division, to join the board of the entertainment company.

Despite all his troubles in the UK, New York-based James Murdoch will almost certainly remain an executive director of the entertainment business. He and Elisabeth are still very much in line to potentially replace their father as CEO when the time comes. Carey may never get the top job.

Seeing as Rupert and Lachlan Murdoch remain passionate about newspapers and their Australian heritage, what happens with the publishing business will be fascinating.

For starters, it won’t be nearly so beaten-up and unloved as people think, given the presence of the likes of REA Group, the US inserts business and what will be a dominant Australian pay-TV monopoly. However, the large losses incurred from printing the likes of The Australian, The Wall Street Journal, The New York Post and The Times won’t be sustained over time.

Like every other newspaper, the resourcing of daily dead-tree journalism will continue to contract quickly. Of this loss-making group, The Wall Street Journal will probably be the only masthead still printed daily within five years.

News Corp’s announcement envisages the dual-class voting gerrymander will be retained in both companies. But don’t be at all surprised when Rupert uses buybacks and family money to move to a majority economic interest in the publishing business, which houses the newspapers he so loves.

It will be affordable for a family worth $7 billion and the gerrymander would be less defendable with a smaller business that had a majority of its value in Australia.

While phone hacking remains a disaster for the family, a stain on Rupert’s reputation and a potentially liberty-denying exercise for James Murdoch, Lachlan Murdoch’s recent mis-adventures in Australia are another complicating factor.

By putting the Australian pay-TV assets into the publishing business, it creates a precedent that could see this business acquire Lachlan Murdoch’s personal radio assets and his 9% stake in the floundering Ten Network. Lachlan was only able to buy these assets after Rupert’s four adult children negotiated a combined $US600 million family payout, in exchange for letting Wendi Deng’s two daughters into the family trust as economic but not voting beneficiaries.

Lachlan is the only adult child who has squandered the payout and now suffers the ignominy of being propped up at Network Ten through financial support from long-time family rival James Packer.

With Labor, the Greens and the independents all smarting at the visceral treatment dished out by the Murdoch press over the past two years, the coming Australian debate on media regulation will be one for the ages. The Murdoch family game plan will be to go all out backing Tony Abbott in the hope the Coalition secures control of both houses and then emulates the initial sycophantic approach of David Cameron and his Communications Minister Jeremy Hunt, who wasn’t at all troubled by the proposed BSkyB takeover.

With political support from an Abbott government, the Murdoch family would then love to see the publishing business buy Network Ten and DMG, so that Lachlan Murdoch could return triumphantly as either chairman or CEO of the whole operation.

Whether Lachlan can even start off as a director of the separated publishing company will in part be determined by the coming media regulation debate and ACMA’s response to this complaint lodged by Avaaz last month.

The biggest obstacle for such a move to tolerate even more Murdoch family dominance in Australia may yet prove to be Abbott’s communications minister Malcolm Turnbull, who for some reason has never received the blessing of Rupert Murdoch. And, as we all know, former journalist Turnbull is no pushover when it comes to media concentration, deal making, independent journalism and taking on powerful, vested interests.

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  • 1
    michael r james
    Posted Friday, 29 June 2012 at 2:13 pm | Permalink

    Interesting.
    I actually think it would not be a bad thing, long term, for a Lachlan takeover in Australia. I suppose one could call this the ABR scenario: Anyone But Rupert.
    Let me do a weird thing and re-post a relevant comment I posted to Paul Barry’s article the other day, but which typically for the Power Index, disappeared into the ether. (The seem to be doing a good job of anaesthesizing their newborn.)

    (Paul Barry wrote: ) ” If the two parts of the News Corp business are separated into two companies with different shareholders and separate listings, it will be absolutely impossible to continue that cross-subsidy.”

    Not really. First the shareholders will be identical, at least at first, and second, that means Rupert will still control 40% of voting shares — and you can be sure he has no intention of allowing any change there). Third, he and the Murdoch family trusts will be the biggest beneficiaries of any up-valuation of the entertainment half of the split. So as long as he thinks he can still control everything (and who would bet against that?) then the split may not make as much difference as some might like to hope. If it did he wouldn’t allow the split.

    Nice thought about Gina Rinehart. It would be terrific if she got her hands on News Australia (and, sotto voce, wrecked it…). But, just as in the earlier conjecture, it can’t happen as long as Rupert is breathing (who for a millisecond believes the Brits are going to get serious — all those inquiries are mere theatre intended to pretend they are serious). And on top of that, she would have to buy a lot of shares at market price (or above) because she will not get Rupert’s 40% voting shares at his (is it 10%?) of actual issued shares.

    But you know one little fantasy in which almost everyone could be a winner: Rupert engineers (finances…somehow) Lachlan to buy News Australia. He cannot possibly be as conservative or authoritarian as his father so potentially Australia gets some relief from the toxic News press. And Rupert still sees the empire continue under one son, even if he thinks he is a wet-behind-the-ears liberal. (Luckily Elizabeth or James have no interest in the print media or Australia.)

  • 2
    H Declan
    Posted Friday, 29 June 2012 at 5:48 pm | Permalink

    Why is this company (or whichever demerged part of it) allowed to increase its stake in Australia’s monopoly pay TV business when the circumstances in London can only lead to the conclusion that its management is either corrupt or incompetent? Can we only focus on one megalomaniac at a time? Why is Rupert not held to account?

    Oh well it will be good to see the Australian sink or swim on its own……

  • 3
    Liamj
    Posted Monday, 2 July 2012 at 9:47 am | Permalink

    I must be very naive, because a foriegn billionaire funding loss-making newspaper pulpits for decades seems a little suss - what is the return on investment?

    Related, what is Ruperts return on propping up Abbott Tony? If the implicit regulatory bargain is just BAU, shouldn’t the mad monk come clean about just how far he’d let Rupert go?

    And why aren’t the police and ASIO and ASIS interested in this undue foriegn influence? Too busy selectively leaking to News Corp i guess.

  • 4
    Edward James
    Posted Monday, 2 July 2012 at 1:18 pm | Permalink

    Malcolm Turnbull, who for some reason has never received the blessing of Rupert Murdoch. Could that reason possibly be Malcolm Turnbull once worked for Kerry Packer ? Edward James

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