This piece from Bloomberg picks up a lot of the themes that we have pushed before about Rupert Murdoch running News Corp like a family company.
It looked an impressive piece of business for a brand new company — except when you consider that Shine is run by Elisabeth Murdoch, who happens to be the 32-year-old daughter of BSkyB’s chairman, Rupert Murdoch.
Shareholders in BSkyB might have expected some kind of explanation from the company that the transaction was carried out at arm’s length, or even some reassurance that their money wasn’t being used to support the flagging career of the chairman’s daughter.
They got silence. Investors in Murdoch companies have long since learned to expect little in the way of respect or courtesy from the great tycoon. They exist to provide the rocket fuel for his enormous ego: they give him diesel and gasoline, he fires up his engine, and leaves them far behind.
By itself, the Shine story does not amount to very much: in the context of a company valued at 14 billion pounds, it is small potatoes. But it illuminates the way Murdoch does business, and how it’s now getting him into trouble.
Murdoch turned 70 last month, and much of his energy in the past few years has been devoted to creating a dynasty, and largely getting away with it. Now for the first time it looks to be catching up with him. That is an important development. It shows that the financial markets are becoming both more democratic and more meritocratic. Dynastic pretensions — even from a mogul as talented as Murdoch undoubtedly is — are no longer so easily tolerated.
The News Corporation empire is dotted with tiny Murdochs: Lachlan, at the grand old age of 29, is deputy chief operating officer; James at 28 runs Star TV in Asia, and holds a senior position in its U.S. business; Elisabeth has held senior positions at Sky and is now making movies for daddy; even his son-in-law Alasdair Macleod, holds a senior position at the company’s London office, where he oversaw its disastrous and costly Internet adventures.
Remember, News Corp is a company in which the Murdoch family holding is just above 30 per cent. (Ed’s note: only 17 per cent of the dollar value if you include the preferred shares). It isn’t their company, but that hasn’t stopped Rupert from treating it as a family plaything, the prizes to be distributed among his children like gifts around a Christmas tree.
For the past six months, Murdoch has been trying to buy DirecTV, the U.S. satellite broadcasting unit of General Motors Corp. The plan was to merge it into a new company called Sky Global, an idea that was accompanied by a lot of hoopla from the Murdoch-owned press (“the first global television network,” gushed the Murdoch-owned Sunday Times on February 25).
Sky Global was going to include a couple of gems, and a lot of rubbish Murdoch has picked up over the years. It would have DirecTV, and a 37 percent stake in BSkyB: those are the gems.
It would also have a 50 percent stake in Italy’s Stream, which loses money so heavily the company has considered selling it, a 22 percent stake in KirschPayTV in Germany, and all of Star TV in Asia, which though it reaches a lot of houses in India and China, hasn’t translated that into a profitable business (most people like to make sure they have enough rice and clothes for their children before shelling out for re-runs of The Simpsons and the X-Files).
The offer from Murdoch was that DirecTV would be folded into Sky Global, and shareholders would get shares in the new company. In effect, they would swap shares in a GM-managed business for shares in a Murdoch-managed business.
Guff and Noise
This was accompanied by lots of guff and noise about a global satellite broadcasting business, though in effect all that would really be added to DirecTV’s existing business would be some shares in BSkyB (which, if it wanted them, it could buy in the market anyway), plus some loss-making affiliates. No premium for control of DirecTV was on offer. Not surprisingly, the bid was declined.
In Australia last week, Murdoch described the negotiations as “extraordinarily difficult.” Quite so. When you offer people a rotten deal, you should expect the conversation to be terse and pointed.
What the stalled negotiations over DirecTV showed, however, was that the market is no longer willing to accept Murdoch paper, and rightly so. The performance of News Corp. shares has been dreadful: the shares have fallen from a high of A$27 last year to just A$15 now. It has consistently been rated lower than rivals such as AOL Time Warner Inc. or Vivendi Universal SA, and its credit rating is triple B, only just above junk status.
Shareholders as Serfs
That is because Murdoch has never been prepared to treat his shareholders as anything more than serfs. The company has always been run to promote his interests, and the interests of his family: if other shareholders wanted to come along for the ride, they did so at their own peril.
Murdoch has always issued far more debt than is sensible for the company, because he refuses to loosen family control, and he refuses to do any deals that surrender power from Murdoch personally. Witness the proposed merger between Sky and France’s Canal Plus, which would have been fabulous for Sky’s shareholders — it didn’t happen because Murdoch, a minority shareholder in a company than owns a minority stake in Sky, wouldn’t have become chairman.
That might be okay if Murdoch was a creator of companies, but he isn’t: he has always been mainly an acquirer of companies, a deal-maker rather than an entrepreneur. He needs access to other people’s money to keep his businesses going, yet he refuses to cede any control over how that money is spent.
That style now looks as modern as frock coats and top hats. The failure of DirecTV shows the capital markets are not willing to play ball any more. As Murdoch will discover in the next few years, the era of dynastic tycoons has passed. We should shed few tears for its passing.
Editor’s note: Having seen Rupert treat his shareholders with disdain – no proxy votes displayed, no chairman’s address before questions, outrageous pay for execs and nepotism everywhere – at the last two Adelaide AGMs we can certainly support this article and only hope Rupert becomes a little more democratic in the future.