Rupert Murdoch’s real-life succession drama is underway in a Nevada courtroom. What might happen next?

A unique court case is getting under way in Nevada this week. At stake is the future of the Murdoch empire. The case, which begins on September 17 local time, is scheduled to run (in secret) for two weeks, and sometime after that the Reno Nevada County Probate Commissioner will make what will probably be the biggest decision of their career.

The drama centres on a Murdoch family trust that was agreed on in 1999, when Rupert was divorcing Anna. Instead of seeking a larger share of his fortune, she insisted on the setting up of an irrevocable trust, which meant Rupert’s four existing children (Prudence, Elisabeth, Lachlan and James) would have one share each after he died. Anna’s priority was to secure the long-term futures of the four children and protect them against any future action by Rupert’s new wife, Wendi Deng. So, when Rupert later had two children with Wendi, they had equal access to the money, but no power inside the company.

Last November, Rupert initiated legal action to revoke this “irrevocable” trust, to give his chosen successor, Lachlan, full control. His justification was that the viability of the company rests on its right-wing appeal and that the other three might seek to change this.

Read more: Rupert Murdoch's succession plan reveals a lot about his empire – and most of it is not pretty^[1]

The move shocked the other three siblings, and reportedly has led to some sharp conflicts. Elisabeth, who had always sought to be the peacemaker in the family, was reported to be particularly angry. There was already irreconcilable conflict between Lachlan and James, who according to several reports have not spoken to each other for five years. It was less clear where Prudence and Elisabeth stood. Now, according to a report in Murdoch’s Wall St Journal, they have moved closer to James.

The trust can only be changed if all beneficiaries would benefit. With the other three children contesting the move, Rupert must convince the judge that these three adults of healthy mind and body are not the best judges of what is in their interests, that their wishes should be overridden. Both sides have expensive lawyers, but common sense suggests Rupert faces an uphill battle, and is unlikely to win.

Political differences?

Rupert’s preference for Lachlan to be his unchallenged successor is usually attributed to politics. However, Rupert and Lachlan are very different political animals. Rupert was always keen to be a participant, an insider pulling strings, privy to inside information. Lachlan does not seem to share this wish to be a player.

Similarly, their public political styles are in sharp contrast. For example, on wind power, Rupert tweeted “Uneconomic, bird-killing windmills. Mad.” On the eve of George W. Bush’s invasion of Saddam Hussein’s Iraq in 2003, Murdoch said “We can’t back down now, where you hand the whole of the Middle East to Saddam”. This was more extreme (and more nonsensical) than anything coming from the White House itself. Rupert’s style is sharp, provocative and usually intolerant of any other view.

In contrast, when Lachlan talks about politics, his ambition seems to be to make it as anodyne as possible. In an interview^[2] with Paul Kelly to celebrate the 60th anniversary of the Australian newspaper, he commented on US politics:

I think both sides of American politics have been divisive. A lot of public commentary has been around Trump being a divisive figure. But I think the Democrats are being as divisive, and that Biden has been a divisive president. We need to find leadership that can bring the country back together.

At first blush, this sounds reasonable, a “both-sides-ist” balance, but it takes a very determined imagination to say that Biden and Trump have been equally divisive. Moreover, coming from the chief executive of the company that owns Fox News, one of the strongest drivers of divisiveness in US politics, it is the height of hypocrisy.

It is often assumed that Fox News is following Rupert’s political views, but in several important ways they differ. For example, in 2013, encouraging Australia to have more migrants, he said “I’m a big one for encouraging migration. Just look at America.” (Actually he got it wrong – Australia then had 38% of people born overseas, the US just 13%). So Rupert has always been pro-immigration, whereas Trump and Fox News are deeply against.

Privately, Rupert is said to favour tighter gun-control laws, a view that never gets strongly put on Fox. On foreign policy, he is much closer to the George W. Bush neo-cons than to the Trump isolationists, and is adamantly opposed to the pro-Putin leanings on Ukraine. He thought Trump did a bad job on the COVID pandemic and deplored the anti-vax views that Fox News often aired.

After the 2020 election, Rupert believed Trump had clearly lost, and that his promotion of the January 6 violence against the Capitol was shameful. However, when Fox News ratings fell, Murdoch and the other top management panicked and instead locked themselves into Trump’s false narrative of a rigged election. Their ratings improved, although it proved a very expensive strategy^[3] when Fox News was forced to pay Dominion Voting Systems $US787.5 million (A$1.17 billion), the biggest defamation payout in US history, for the falsehoods they had broadcast.

So it is not quite that Rupert shares the Fox News worldview, but rather that he sees going along with it as a commercial necessity. Rather than being too moderate, it seems Rupert and Lachlan fear the others may want professional integrity to intrude on their commercial expedience.

Starboard Value and dual voting shares

Although it lacks the Succession-style drama of a family conflict, an equally important challenge awaits the Murdochs later in the year. The hedge fund Starboard Value publicly released a letter sent to all shareholders on September 9 proposing to eliminate News Corp’s dual-class share structure. This was set up by Murdoch decades ago when he needed to raise capital but did not want to dilute his control, and so engineered an issue of non-voting shares. Today the Murdochs have around 40% of the votes with just 14% of the total shares.

The letter^[4] says News Corp suffers from worst-in-class corporate governance and that the company is significantly undervalued and burdened by its share structure. It contends that

while we can understand how some could see a benefit to a visionary founder retaining outsized control for a limited duration of time, that potential understanding vanishes as super-voting power and the associated protections transition to others.

It went on that current arrangements provide outsized influence to the Murdoch family. It is “clearly not the appropriate governance structure for a public company, and we believe it has exacerbated News Corp’s valuation discount relative to its inherent value.”

Last year Starboard Value recommended that News should seek to spin off its property division (including the REA group in Australia), the company’s best-performing part, and this could provide a $7 billion windfall. Other investment analysts have also said the underperforming parts of News Corp are dragging down its market value.

Evidence of shareholder wariness came in 2022 when Rupert and Lachlan aimed to re-merge their two companies, News Corp and 21st Century Fox, but were forced to abandon the idea. There have been several earlier attempts to change the dual voting share structure. One year, 90% of unaffiliated shareholders voted that way, but fell just short of an overall majority, thanks to the Murdoch gerrymander.

This time, however, the Murdochs are opposed by the head of Starboard Value, Jeffrey Smith, who according to Crikey^[5] was once described as “the most feared man in corporate America”. Both Fox (up 24% over the past year) and News (up 30%) have done well recently in the share market. However, as evidence of the problems facing the company, last year it slashed 5% of its global workforce, roughly 1,250 jobs.

What happens next?

Here are four predictions for how this may play out.

1. Rupert will lose the court case. His move is likely to be counterproductive in many ways. It has escalated conflicts in the family, and united the other three siblings against Lachlan. It will be used by shareholder groups as evidence of family dysfunction, and strengthen their case to abolish dual voting rights.

2. Either before Rupert dies or within a year or two afterwards, a majority of shareholders will abolish the dual voting structure. The family will then be reduced to about one-seventh of the total vote, and its power correspondingly reduced.

3. After Rupert’s demise, the Murdoch assets will be further fragmented and reduced. The real estate businesses will be floated, and several loss-makers, such as the New York Post, will be closed.

4. Within five years of Rupert’s death – depending what parts of the companies are invested in, sold off or closed - neither News Corp nor 21st Century Fox will have a chief executive named Murdoch.

References

1. ^{^} Rupert Murdoch's succession plan reveals a lot about his empire – and most of it is not pretty (theconversation.com)
2. ^{^} an interview (www.theaustralian.com.au)
3. ^{^} very expensive strategy (www.smh.com.au)
4. ^{^} letter (www.businesswire.com)
5. ^{^} according to Crikey (www.crikey.com.au)