[Theme Music Starts]

RUBY:

From Schwartz Media, I’m Ruby Jones, this is 7am.

Rupert Murdoch’s news corporation is cutting 5% of its jobs around the world, with over a thousand employees in the newspaper business about to be let go.

But it’s not the only upheaval within the Murdoch media empire. Plans to merge Fox Corporation with the newspaper side of the business have recently been shelved.

So what does that mean for Rupert’s successor, his eldest son, Lachlan.

Today, contributor to The Saturday Paper and author of the biography of Lachlan Murdoch The Successor, Paddy Manning, on the merger that could define Rupert Murdoch’s legacy, and whether he’s really abandoned it for good.

It’s Thursday, February 16.

[Theme Music Ends]

RUBY:

So, Paddy, I want to start with something that happened this week, a kind of unexpected image that came out of the Super Bowl. The game is obviously a huge revenue earner for Murdoch's Fox Corporation, I think it made them something like $600 million in advertising just on that one day. But the thing that sticks in my mind is this image of Rupert Murdoch in the crowds with Elon Musk. I mean, I would love to know what they were speaking about.

PADDY:

Me, too. Elon tweeted that they talked about Dogecoin, the crypto currency, but the other interesting thing from that image, Ruby, is that Liz Murdoch, Rupert's eldest daughter to his second wife, Anna, was there sitting chatting with Elon Musk as well. And what that shows is that Elizabeth is certainly not estranged from her father.

We've seen a lot of speculation of, I reported some of it myself, about how Rupert is estranged from his youngest son, James. But it certainly seemed from that, you know, Super Bowl, Elizabeth and Rupert certainly aren't estranged. And that has implications for the succession.

RUBY:

So there's a lot happening at News Corp at the moment, but probably the biggest proposal that has been considered in the last few months is this attempt that was made by the Murdochs to really consolidate their power with a merger, a merger of the two major media companies. So Fox and News Corp. And that's interesting because these companies, they did in a way, used to form part of one big company. That original split. It came after the phone hacking scandal, didn't it? So, could you take me back to that time and the way that that split came about in the first place?

PADDY:

Yeah, sure. So back in 2011, The Guardian in the U.K. broke news that the News Corporation is actually its biggest paper in the United Kingdom, The News of the World, had been hacking into the phones, not just of celebrities or the royal family or politicians or sports stars, but into the phones of a murdered British schoolgirl and it triggered the biggest crisis that the Murdoch empire has arguably ever faced. The wave of public revulsion triggered, in the end, a huge wave of inquiries round the world into the Murdoch media, but also forced the company to shut down the News of the World altogether.

At this point, the family’s completely divided about how to respond to the phone hacking crisis. And what they did in the middle of that meltdown, they decided to try and quarantine as their shares were absolutely going through the floor to try and stem the losses by hiving off Fox Corporation, which was the US business, by and large, quarantining the film and television business from the old newspaper business.

Archival tape -- News Presenter:

“Let’s get more now on our top story and Rupert Murdoch’s move to separate News Corporation into two, Mark Mcdonald is the..”

Archival tape -- Rupert Murdoch:

“I finally reached the conclusion that it was the right thing to do. And the more I go into it, the more I study it, the more enthusiastic I am about it.”

PADDY:

They wanted to give investors the impression that the losses from the legacy newsprint were being quarantined off. And they would spin off a new company, Fox Corporation, which had much more upside and growth potential and hopefully free it from the kind of downward spiral of litigation and compensation that News Corp was facing.

Archival tape -- News Presenter:

“According to a story in the Wall Street Journal, its newspaper and book publishing assets will be separated from the more profitable entertainment business.”

Archival tape -- News Presenter:

“So how much of it, then, is as a result of the phone hacking scandal in the United Kingdom?”

Archival tape -- Interviewee:

“Well, officially, the company’s denying that that's the case. But I think most of us see that it has played a role.”

PADDY:

They spun off Fox Corp and it was a huge transaction.

News Corporation remained the company which owned all of the newspapers. That includes not just The Times and The Sun in England, but, of course, The Wall Street Journal and The New York Post in America and in Australia, The Australian, as well as all of the tabloids that we know.

So investors saw that there were two companies now. A good company, Fox Corp, full of growth prospects, and what they saw was a bad company, News Corporation, which had the legacy newspaper businesses with this long tail of liability from the phone hacking scandal.

RUBY:

Okay so that's how the split came about a decade ago now. So, when did we first hear that there might be some move to reunite the empire, to put the bad and the good back together again.

PADDY:

Well I had actually revealed in my book, my biography of Lachlan, who is, of course, the Fox Corporation CEO, that he had at the beginning of 2022 in February pulled together the boards of both Fox and News Corporation and the senior leadership from both companies and called them to his mansion at Beverly Hills called Chartwell for a one day strategy meeting, which was, designed to kind of think about how the Murdoch media empire would respond to the challenges of Web 3.0, you know, blockchain, the metaverse. Lachlan had a view that the media industry had been caught off guard by Web 2.0, the rise of social media and so forth and he didn't want to see that happen again.

But the very fact that Lachlan himself would pull together the boards of both companies sparked, internally, discussion about whether a merger might be back on the table.

It kind of surprised the market in October last year, 2022, when both companies, Fox Corporation and News Corporation, announced that they'd received a letter from the Murdoch Family Trust and from Rupert Murdoch himself, saying that they were considering a proposal to merge the companies again and put them back together effectively and would set up special committees of both boards, the Fox and News Corporation's, to consider the merits of a merger proposal.

So when the companies made this announcement in October and set up these special committees. there was immediately a kind of bit of head scratching amongst investors because Lachlan himself, when he took over as chief executive of Fox Corporation, had said in 2019, that he didn't see an industrial logic in putting the companies back together. But I suppose you never say never, and now it seems to be back on the table.

RUBY:

Yeah, obviously something changed for Lachlan and I wonder what that was because the last person to be chairman of both of those companies as a single entity was his father, Rupert Murdoch. So to what extent do you think that this is about lining up the two halves of the empire, joining them back up once again at a time when Lachlan is sort of coming into view as the likely successor so that he can follow in the footsteps of his father and really be solidified as the true successor to the Murdoch businesses.

PADDY:

Well, I think that was a large part of the motivation, Ruby, and the current situation is that the Murdoch Family trust controls both companies by a holding of approximately 40% of the voting shares in each company. So with that 40% voting stake, it's enough generally for the Murdochs to prevail on any given issue that faces, you know, the boards and shareholders of both companies.

And yet there are deep divisions within the Murdoch family themselves and on that Trust. Once Rupert dies, it then becomes an open question as to how with Lachlan and James divided, how will the sisters vote and will they back James or Lachlan? The speculation when I wrote the biography of Lachlan was that they would be aligned with James.
And so I think the merger was an attempt to entrench Lachlan by making him the unquestioned head of the media empire across both companies. Rupert is the executive co-chairman of news corporation and that’s the last executive role he has in the empire.

I think it's most likely that if we had seen a merger proposal that was concrete and ticked off by the special committees of both boards, you would have seen Lachlan emerge as the executive chair and chief executive of both Fox and News. And most likely, you would have seen Rupert relinquish his last executive role. And so there would be no question about who the successor was to Rupert and that it was Lachlan.

RUBY:

We'll be back in a moment.

[Advertisement]

RUBY:

Paddy, Rupert and Lachlan Murdoch, it's clear they want to consolidate News Corp and Fox into one company. When they actually float this idea, what kind of reaction do they get from shareholders?

PADDY:

Well, it's interesting because there's immediately a backlash

Archival tape -- News Presenter:

“Shares of Fox news parent Fox Corp hit their lowest level of 2021 Monday morning, while shares of News Corp were on course for their best day in nearly 2 years.”

Archival tape -- News Presenter:

“There is gonna be major blowback from big personalities and big wigs in the media world learning they’re going to be back in bed with Fox News, but that’s gonna be...”

PADDY:

Now there's no flesh on the bones of the proposal at all. There were simply a couple of lines about the exploring the potential for a merger and and an indication that the Murdoch Family Trust supported the proposal.

So if you continue to believe that Fox was the good company with a pure US focus and none of the legacy problems of the print media, then you would expect maybe that News Corporation shareholders would have welcomed a proposal to merge with what is undoubtedly still a very profitable business.

But what we actually saw was a lot of head scratching from investors and a bit of confusion as to which was any longer the good company and which was the bad company.

We never actually got to see what would the new merged News Corp. or Fox Corporation or whatever it was going to be called. What would it look like? Which businesses would be integrated and how? There were, obviously synergies between the two companies, let's face it, and ultimately if you put the two companies together, there would undoubtedly be cost savings.

But Fox Corporation investors look at News Corporation and say, oh, it's a grab bag of assets from all over the conglomerate, you know, it's all a bit unwieldy and Fox Corporation investors didn't want to see their earnings from, you know, the Fox News powerhouse, for example, diluted by News Corporation, you know, legacy newspaper, weak earnings or declining earnings. And the same goes on the News Corp side. Fox News is facing two multibillion dollar defamation lawsuits in the United States. It's a controversial business and not everyone who is invested in News Corp necessarily wanted to own a structurally challenged controversial pay TV business in America.

RUBY:

And so when all of these concerns started to circulate, it did seem, publicly at least, there were plenty of news articles about it, that the merger wasn't going to happen anymore, didn't it?

PADDY:

Yeah, the Murdochs had originally said that the deal would only go ahead if it was supported by a majority of non-Murdoch aligned shareholders in Fox and News. And so as more and more institutions, fund managers came out objecting publicly, it did begin to look as though there was no way the merger could succeed.

Archival tape -- News Presenter:

“Right some breaking news now…Rupert Murdoch has withdrawn plans to recombine Fox Corp and News Corp”

PADDY:

In January, News Corporation announced that it had received interest from a US company called Co-star in buying Move Inc. in the United States which owns realtor.com, which is the second biggest property listings website in America, from News Corp.

And according to the speculation, initially this was leaked, the speculation was that the price was in the vicinity of $3 billion. And, as I understand it, it's that opportunity that has caused Rupert and Lachlan to put the merger of Fox and News on ice.

RUBY:

Right, so you’re saying Paddy, that because there was this other sale to focus on - the sale of a real estate website - that was enough for Lachlan and Rupert to lose interest in this huge deal that would cement Rupert's legacy, and establish Lachlan's power?

PADDY:

I mean, $3 billion is a lot for a business which Lachlan in fact was, integral to News Corp originally investing in digital real estate, when he urged them to take a 44% stake in realestate.com.au back in 2000.

But there's a wrinkle in that transaction, which is that it will take a year to 18 months to complete.

And so the Murdochs took the view that there was no point having lawyers and bankers working on a merger proposal for the next 12 to 18 months so they’ve put it on ice. But my understanding is that they remain keen on the merger, and in fact, some of the comments that Lachlan made at the Fox Corp. earnings call last week suggests he remains keen on the merger.

And I suspect that once that transaction is completed, the merger will be back on the table.

RUBY:

Ok, so once this deal involving the sale of Move Inc is secured, it seems like we might start to hear once again about this potential merger. If this does become something that they’re prosecuting again with stakeholders, I wonder what a merger like this really means in terms of the influence of the Murdochs. What will it mean for their market dominance when it comes to news and entertainment, and will it expand their influence?

PADDY:

Well, I think that's an open question, Ruby. I mean, I think that unquestionably, the influence of Fox and News combined global level is probably not what it was even in 2016 when you know there were a lot of commentators suggesting that Trump was the Fox president and Brexit was, backed by the Murdoch newspapers in the U.K. and there was this populist wave which was kind of closely identified with the Murdoch media.

So yeah, you have commentators kind of speculating about how the political influence of the Murdoch media seems to be in decline - obviously in the US we have now the Biden presidency and Lachlan himself describing Fox News, for example, as the loyal opposition to the Biden administration. And you know, all of the prognostications on Fox News about a Republican red wave that we were going to see at the midterm elections in November just did not eventuate at all.

I think it comes back to the Super Bowl and Elon Musk sitting next to Rupert Murdoch. I mean, who is the more powerful of those two? And I don't pretend to have an answer, but I think putting Fox and News Corp together, could well entrench the succession to Lachlan. It could well add some scale but does it increase their political influence around the world? I think that's not clear.

RUBY:

We'll have to wait and see I suppose, Paddy, thank you so much for your reporting and for your time talking to me about it.

PADDY:

Ruby. Thank you.

[Advertisement]

[Theme Music Starts]

RUBY:

Also in the news today,

Reserve Bank Governor Philip Lowe says interest rates have not reached their peak and that he doesn’t know how high they could yet go.

Lowe, who was answering questions at Senate estimates, also appeared to defend the profits that banks were making as mortgage repayments rise.

He said: “I know it's hard for people to accept when they're suffering … but the country is better off having strong, resilient banks.”

And neurosurgeon Charlie Teo has been facing a week-long disciplinary hearing in front of the New South Wales Medical Council's Professional Standards Commission.

The husband of one of Teo’s former patients has told the inquiry that Teo told his wife that if she didn’t have brain surgery she would be, quote: “fucking dead by Friday.”

The hearing continues…

I’m Ruby Jones, this is 7am. See you tomorrow.

[Theme Music Ends]