Murdoch Plan for Empire Pushes Fox Down Most Since 2020

Rupert Murdoch’s plan to combine News Corp. and Fox Corp., recreating the conservative-leaning media goliath that he split apart nine years ago, drew mixed reactions on Wall Street.

Several analysts said the potential recombination is unlikely to solve one of the key problems facing Fox and News Corp.: low valuations relative to their peers. While News Corp. gained 3.4% amid a broad market rally, Fox’s Class A shares dropped 9.4% for the biggest decline since March 2020.

The 91-year-old patriarch of the global media empire is seeking to reunite the parent of Fox News with that of the Wall Street Journal and the New York Post, the companies said Friday. His family trust holds about 40% of the voting stock of each company, and recombining them would save corporate expenses and allow the bigger entity to more easily promote new businesses, such as sports betting, across multiple media outlets.

For Fox, the benefit of “greater scale and modest cost synergies is in our view largely offset by increased complexity,” Benjamin Swinburne wrote at Morgan Stanley. As for News Corp., colleague Andrew McLeod said there is “strategic merit in a potential merger” but that the timing of any asset sales or spinoffs would be critical.

So far no one from the Murdoch clan, which includes Rupert’s six children, has spoken publicly about the deal. The move would likely consolidate power in the hands of his son Lachlan Murdoch, 51, currently the chief executive officer of Fox. 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.

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

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.

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 and the deal is unlikely to change what has been a 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 on 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, which include voting rights.

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

While combining Fox and News Corp. is “not an overly obvious transaction,” analysts at Wells Fargo & Co. said merging the companies could deliver synergies in content and programming. UBS Group AG also noted that News Corp.’s US 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.

Rupert Murdoch 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.

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

James, 49, 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 split 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.

Christopher Palmeri reports for Bloomberg News.

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