The odds firm on a deal between Murdoch and Disney

If the inside word from Rupert Murdoch’s own papers is to be believed, The Walt Disney Company is ahead in the field of giant US corporates looking to raid the prized assets from his 21st Century Fox in a deal that could see the Murdoch-controlled 21st Century Fox emerge as Disney’s largest shareholder.
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And the Murdoch family controls 21st Century Fox. So, if the deal pans out as it has been characterised by Murdoch’s own journalists this $US40 billion ($53 billion) asset sale could see the empire grow rather than shrink and the family’s tentacles expand.

How much control could the Murdochs have of Disney? Let’s see where his youngest son James ends up. If, as speculated, James, moves across to Disney and takes pole position to be its chief executive by 2019 when the current boss Bob Iger retires, it suggests pretty clearly that the Murdochs have plenty of sway.

The deal involves the sale of the content and distribution assets of 21st Century Fox – which account for around three-quarters of its value, being sold to Disney in return for shares, according to the well-placed sources cited by Murdoch’s newspaper, The Wall St Journal.

Murdoch senior and elder son Lachlan get to keep the news and sports assets (including Fox News) plus the controlling interest in the separately-listed newspaper-based business, News Corp.

The idea being floated by the Murdochs is that James moves to Disney and manages the 21st Century Fox assets that are part of the deal and would then be in contention for chief executive’s job at Disney when it became available.

James Murdoch has certainly not been a disaster in his role as chief executive at 21st Century Fox, nor is he among the giants of the corporate landscape in US management circles.

The latest speculation from the Murdoch camp is that James, and not Lachlan, has been pushing for a deal for 21st Century Fox to sell its distribution and content businesses.

Unlike Lachlan, James is supposed to have been the family member who best appreciated their value to competitors like Disney, Comcast and Amazon and the most aware that Murdoch’s businesses didn’t have sufficient scale and could be left behind.

In 2014 Murdoch unsuccessfully attempted to bulk up by acquiring Time Warner – so presumably he understood the dynamics well enough.

There has been lots of talk about 21st Century Fox entertaining offers for these assets over the past couple of months and a number of parties taking an interest.

But for the Murdochs, Disney is the best fit for a bunch of reasons.

Disney is big but not too big – being valued at $US160 billion on the stock market. If it acquires $US40 billion of 21st Century Fox assets and pays for them in Disney shares it allows the Murdoch-controlled 21st Century Fox to emerge with a stake of (back of the envelope) roughly 20 per cent.

Comcast is roughly the same size as Disney – so it ticks that box – but it already has a controlling shareholder, the Roberts family.

(The sweet irony here is that the Roberts control Comcast through a dual class share structure where they hold a bigger voting interest than their economic interest. This is the same mechanism used by Murdoch to control 21st Century Fox.)

Additionally the experts consider that there would be regulatory/competition issues with a Comcast deal so certainty would not be assured.

The US Justice department is currently challenging the merger of AT&T and Time Warner – which owns HBO.

There has also been speculation that Amazon had an interest in Murdoch’s content and distribution assets.

This would be less likely to attract anti-trust regulatory concerns but Murdoch could exercise no control over the $US560 billion Amazon which is run by Jeff Bezos.

Netflix is smaller and has an open share register but very much under the management control of its founder, Reed Hastings.

There are no guarantees that Murdoch will do a deal with any party and only a few weeks ago was said to have ceased discussions with Disney. But over the past few days there has been a flurry of news citing well-connected sources that say discussions are once again live.

Leaks about last month’s talks were more vague, didn’t contain any reference to the deal involving Disney shares as payment and didn’t mention that James Murdoch was part of the package.

This suggests that the earlier high-level talks have evolved to a more granular level.

The fact that Murdoch is seen as having put these assets up for sale combined with the fact that there has been a lot of interest suggests that a deal will ultimately be done.

The opportunity to expand the 21st Century through acquiring the remaining 61 per cent of shares it does not own in UK satellite group BSkyB is looking increasingly difficult.

This week the UK competition regulator delayed its decision for another month and is now likely due in mid January.

The stake in BSkyB is part of the suite of assets which are under negotiation with Disney.

The UK Competition and Markets Authority will assess the competitive impacts but also the Murdoch empire’s track record in broadcasting in the UK and the US.

It is a complication that may hold up negotiations but may not be a show stopper.

This story Administrator ready to work first appeared on Nanjing Night Net.

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