Murdoch plan that would rejoin News Corp and Fox 9 years after split leaves investors ‘scratching their head’

So far none of the Murdoch clan, which includes Rupert’s six children, have spoken publicly about the deal, which the companies acknowledged was in the works on Friday. Rupert’s son James Murdoch, a former executive at the family media empire, resigned from the News Corp. board in 2020, citing disagreements over news judgment and strategy.

The proposed recombination would reunite the parent of Fox News with that of the Wall Street Journal and the New York Post, saving the Murdochs money by not having to run two separate companies. It also would allow the bigger entity to more easily promote new businesses, such as sports betting, across multiple media outlets, according to people familiar with Rupert and Lachlan’s thinking. 

Rupert Murdoch and his family trust, which controls about 40% of the voting stock at both companies, proposed the combination to their respective boards. A majority of the non-family shareholders would have to approve, and that could give an opportunity for anyone opposed to the deal to speak out.

Lachlan is the favorite to eventually control the entire Murdoch empire. James, whatever misgivings he may have about the organization’s politics, wouldn’t be able to do much to stop the consolidation if he wanted to. But as a prominent family member, his opinion could carry weight with shareholders. James Murdoch declined to comment. 

Deal Skepticism

Not everyone thinks reuniting the companies is a great idea. Kannan Venkateshwar, an analyst with Barclays Plc., said in a research note Sunday that he found the proposal a “head-scratcher.” Neither company has businesses that are all that complementary to each other, he wrote.

Plus, the deal is unlikely to change what has been an historical discount placed on the Murdoch media empire, relative to peers, he wrote. Both companies are trading at a bit more than six times their 2023 earnings before interest, taxes, depreciation and amortization.

Separately, Irenic Capital Management favors a break up of News Corp.’s media and real estate listings businesses, according to a person familiar with the matter, confirming a report in the New York Times Sunday evening. The activist fund holds a $150 million stake in the company and is one of the 10 largest holders of its Class B shares.

Irenic and its partners have engaged with the Murdoch family and believe that splitting up News Corp. could unlock value, contending that the company is trading at a significant discount to a sum-of-the-parts valuation that should be about $34 a share, the person said. 

Fox’s Class A shares closed Oct. 14 at $31.55, down 15% for the year, while News Corp. was down 34% to $15.60.

Irenic is prepared to oppose a transaction that undervalues News Corp., the person added. 

Venkateshwar at Barclays compared the transaction to the Redstone family’s remerger of Viacom Inc. and CBS Corp., which he said hasn’t added much value.

“There is likely to be some investor consternation about the thought process behind any combination of the two companies and the knee-jerk investor reaction is likely to be negative,” Venkateshwar wrote.

At MoffettNathanson, analysts Robert Fishman and Michael Nathanson said they too were left “scratching our head” by the plan. “We do not believe in sum-of-the-parts stories and combining Fox with News Corp.’s assortment of assets likely won’t lead to any reset valuation and will even more likely complicate the narrative for investors,” they wrote Sunday. Fox as a standalone asset has a clear focus, they wrote.

While combining the two is “not an overly obvious transaction,” analysts at Wells Fargo & Co. said merging the two companies could deliver synergies in content and programming. UBS Group AG also noted that News Corp.’s U.S. divisions such as Dow Jones and the New York Post may benefit from cross promotion with Fox’s television businesses, while there could be potential synergies with Fox’s cable network division. 

“If we’ve learned one thing from analyzing Murdoch assets historically, it’s that the family looks to maximize value and is not emotionally tied to any properties,” Wells Fargo analysts including Steven Cahall and Wojtek Majerczak wrote in a note Sunday. 

Patriarch’s Power

Rupert Murdoch, 91, usually gets his way in the business he began building seven decades ago. He serves as chairman of Fox and executive chairman of News Corp. He also has the biggest share of votes on the family trust, which includes a say for his four eldest children, Lachlan; James; and two daughters, Prudence and Elisabeth.

Special committees of independent directors will explore possible terms and there’s no certainty a deal will be made.

The family’s internal squabbles, which served as inspiration for the HBO series “Succession,” have been well chronicled.

James and his wife, Kathryn, have been critical of the media empire’s coverage of issues such as climate change. Kathryn sits on the board of the 19th, a news organization devoted to women’s issues and public policy, and they’ve helped fund the Bulwark, an anti-Trump conservative news outlet. They are also big donors to Democratic candidates.

Lachlan, meanwhile, defended the split-up of the two companies in a 2019 presentation to investors. He said the spit allowed the company to return to its roots as an “agile, imaginative, entrepreneurial, sometimes contrarian company.” He even went so far to say as he “could see no logic in reversing the benefits of those defining actions.”

His thinking has changed, according to people familiar with the company’s plans. The media landscape has shifted with more consumers viewing content online. Fox and News Corp. have both grown their digital offerings in recent years and Lachlan has the view that he can use both the traditional and new media to launch and promote businesses in the future.