Did you ever think we’d see the day where an Australian family would finish up with a stake worth more than $10 billion in a foreign company over which it has absolutely no control?
That’s what will happen with the Murdoch family once the $60 billion Disney-Fox deal has gone through.
When considering what a control-freak Rupert Murdoch is, this Disney deal with 21st Century Fox really does go against six decades of Murdoch family history.
That said, it is a great deal for 21st Century Fox shareholders and the Murdochs deserve credit for being opportunistic in the interest of shareholders, voting and non-voting.
Previously – especially the DirecTV sale to John Malone’s Liberty Media in 2006 – the Murdochs have done bad deals for shareholders in order to shore up family control of the empire. Preservation of the family’s commercial and political power has been more important than financial returns – hence the tolerance of billions in losses from The Australian, The Times and The New York Post over decades.
This Fox deal is the opposite of that, where the Murdochs literally surrender complete control over media assets (albeit more entertainment than news) worth more than $50 billion.
Amidst of sea of gerrymanders and family influence in the media sector, Disney is also a beacon of good governance with its single class of share and professional board that is not sullied by some founder family or hard-charging media mogul. Time Warner is the only other major US media company with a conventional capital structure.
By taking Disney shares, the Murdochs are effectively abandoning their gerrymandered control over one of the world’s greatest collection of entertainment assets.
The voting and non-voting Fox shareholders are being treated equally in the deal and all of them will be issued voting shares in Disney.
Collectively, Fox shareholders will own 25% of the expanded Disney but the Murdochs themselves will be the second biggest shareholder with just 4.35% of the voting stock.
Compared with a gerrymandered 40% of the votes at Fox and News Corp, this is an unprecedented minority situation for the power-hungry Murdochs.
Whilst this could change, it doesn’t look the Murdochs will be offered any seats on the 12-person Disney board, which reflects the usual takeover practice of the company paying the premium securing all the jobs for themselves.
The same applies to James Murdoch whose future role at Disney has not been contracted into the merger agreement, as often occurs in these situations.
This future structure of Disney opens up an enormously appealing liquidity event for the Murdoch family. As Chris Warren wrote in Crikey on Monday, why would you lock up a majority of your family wealth in an old media conglomerate over which you have no control?
And with Wendi Deng’s children with Rupert fast approaching adulthood, the temptation will be enormous to sell down those shares and let the next generation of Murdochs spend and invest their money however they want.
Lachlan and Rupert could very well choose to use these cash proceeds from any Disney sale to bolster their control over News Corp and the rump of 21st Century Fox which the family is retaining through a spin-off. Both of these companies will feature the odious gerrymander, which sees a majority of the shares on issue denied the vote.
This is something which didn’t have to happen with NewFox – which will have Fox News as its trophy asset — as the board could have spun out the company with a single class of share that would have seen the Murdochs emerge with 17% control, not 40%.
But no, controlling the news agenda and influencing western governments remains the number one priority for Rupert Murdoch who is returning to his roots as a newsman by offloading his entertainment assets to Disney.
News Corp and NewFox will be politically powerful media enterprises with Rupert Murdoch remaining executive chair of both companies, backed up by eldest son Lachlan.
As Michael Wolff noted in this excellent piece for Hollywood Reporter, the Disney deal is partly driven by succession issues with Rupert backing his eldest son Lachlan whilst James Murdoch effectively exits the family business.
If James lands a senior role at Disney and is in the mix to succeed executive chairman Bob Iger in 2021, you could imagine the Murdoch family hanging on to much of their 4.35% stake in Disney.
But if he decides to go out on his own, just like his sister Elisabeth did with her Shine production business, then the pressure will be on to sell down the Disney stake and make cash distributions to Rupert’s six children. Alternatively, if Rupert and Lachlan could swing the numbers on the family trust, any cash raised could be ploughed into News Corp and NewFox, further aligning the family’s wealth with listed companies still controlled by the family.
Unlike the Lowys at Westfield, which will soon be down to less than 30% of their net wealth tied up in family-built listed shopping centre companies, the Murdochs will still have more than 90% of their family wealth tied up in listed media companies, with the majority to be managed by Disney’s board.
From a risk management point of view, Disney will be an old media business with close to $100 billion in debt (assuming the Sky Plc takeover goes through) under ongoing attack from internet-based rival such Netflix and Amazon.
Why wouldn’t you diversify the family’s risk and sell down, particularly if the investment is entirely passive with not even a board seat through which the family could influence how the majority of its wealth is managed.