It’s perhaps a residue of Australian culture that the Murdochs have always loved doing deals in December in a flash of publicity that vanishes as the country heads to the beach.
Thus so with the Disney deal: the last big deal by Rupert.
It won’t be the last sale. This has all the signs of a staged liquidation. For the first time, the family have most of their assets passively invested in someone else’s business. The family will hold 4.4% of the shares in the new Disney with a value of between US$10-12 billion (depending on what happens as the market settles down).
It’s perhaps the worst possible level: Not enough to exercise any real influence (so, no board seats, no apparent job for James); and a lot of personal wealth tied up in one company. Any financial adviser worth their salt would be shouting: “Sell up! Sell up! Whack it into a passive indexed portfolio!”
For Disney, the merger delivers scale, but will it deliver growth? Remember, growth means significant share of the streaming market opened up by Netflix. Competition in this space will be great for content makers — streaming has already significantly boosted drama production, at least in the US, because streamers all need unique programming to compete with.
And the Murdochs? Well, they’re left with not one, but two companies in declining industries: one, more or less in print, and one more or less in (US) free to air television. These are turn-over businesses. The only management challenge is to make sure revenues stay ahead of costs. Right now, that’s quite a challenge, but for the Murdoch family, it must seem quite ho-hum.
There’s been some speculation (largely deflected by Rupert) that the two will merge, but what would be the point? Where are the synergies in either reduced costs or increased earnings?
An alternative is to privatise, but it’s hard to see the $10-12 billion they could pull out of Disney paying for the balance of Fox and News Corp without the privatised company(s) taking on a level of debt that would be dangerous in the current world of media decline, or selling assets.
The new Fox in the US is all bits and pieces. (Fairfax’s Liz Knight has unkindly named it Remnant Co.) Its value is unclear and we’ll have to wait for the market to price it to know.
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The major assets are the Fox studio lot in Los Angeles (valued at around $1.8 billion USD) and the free to air network. Who knows what the network is worth in the current climate? The Sinclair group just paid $3.9 billion US for a not dissimilar portfolio of free to air stations.
And, of course, there’s Fox News, (US) Fox Sports, Fox Business. Were these too treasured to sell? Or did Disney just not want them inside their brand?
The down-sizing that comes with the sale to Disney has the potential to affect the value and control of the Murdoch companies in two ways. First, Murdoch shares have had the promise of unexpected dramatic growth through takeovers and initiatives. It seemed not to matter if the takeover target collapsed (remember MySpace?) or the initiatives never achieved lift off (remember digital education?), just being along for the ride used to be worth something.
Second, the market has been prepared to tolerate the imbalance between the family’s voting shares and capital in part, at least, because of this Murdoch magic (and in part because any gerrymander is hard to undo).
The Fox story is largely a US story. The assets in Australia are held in News Corp.
Here’s the plot teaser: buried in the finance pages of Saturday’s Weekend Australian was the company’s Australian CEO Michael Miller view on the 2018 agenda: “smart about right scale.”
The sale to Disney suggests that “right scale” may mean: “everything is for sale”.
And it may mean more closures (like the recent Manly Daily) or, perhaps surprisingly, it may mean more cooperation with once fierce opponents, like the advertising data deal announced last week with Fairfax and Nine.
But whatever it is, the “right scale” for News Corp is more likely down, not up.