Media titans lock horns over stock
Malone's buying upsets Murdoch
chicagotribune.com
By Leon Lazaroff
Tribune national correspondent
November 26, 2004
NEW YORK -- Sometimes partners, often rivals, John Malone, the cable-TV pioneer and chairman of Liberty Media Corp., and Rupert Murdoch, the equally strong-willed media magnate and chairman of News Corp., are in a showdown likely to determine the future of their companies and the legacies they leave behind.
For Murdoch, who is 73 and clearly planning for his succession, Malone's recent grab of a substantial amount of News Corp. stock, made public early this month, represented much more than just another round of jockeying between two men known as much for their ruthlessness as for their wealth.
This time it involved family.
"Rupert has this deep sense of a continuity," said Harold Evans, whom Murdoch fired as editor of the Times of London in 1982. "Malone's maneuvering absolutely angered Rupert. John Malone is a brilliant fellow, but Murdoch is more than his match."
Appearing at Fox Entertainment Group's annual meeting last week, Murdoch fired back at Malone, revealing that he had secured pledges from large News Corp. stockholders to use their shares to block any unwarranted advances on his control.
Regardless of what News Corp. does to either satisfy Malone or marginalize him, Murdoch made one thing very clear: he's still in charge. Simply put, there is no media company with U.S. operations that so reflects the work and personality of one man as much as News Corp.
Since inheriting his hometown newspaper, The News in Adelaide, Australia, from his war-hero father Keith in 1953, Murdoch has built an empire through more than 100 acquisitions. Chief among them are Fox Broadcasting, 20th Century Fox movie studios, British Sky Broadcasting and most recently DirecTV Group Inc.
Murdoch, who became a U.S. citizen in 1985, wants to leave his sprawling $54 billion media empire to his children.
"Murdoch's clear intent is to give this company over to his progeny," said Porter Bibb, managing partner of Mediatech Capital Partners, a private merchant bank that does not own shares in either company.
At present, Lachlan Murdoch, 33, holds the position of deputy chief operating officer at News Corp. and is publisher of the New York Post. James, 31, heads up BSkyB, the United Kingdom's leading pay-TV service. Their sister Elisabeth, 36, runs her own London television production company, but Murdoch has left little doubt that she could step into a top position.
Though few believe the Murdoch brood currently is ready to take over massive News Corp., their father has made clear his hope that they eventually will.
That's why the surprise stock purchase by Malone, News Corp.'s largest outside shareholder, seemed so threatening.
"What probably hurt Murdoch most was that Malone didn't tell him," Bibb added. "That caused the alarm bells to go off in Rupert's head."
Malone, 63, made his move just as News Corp. won regulator approval in October to move its home base from Australia to Delaware.
As News Corp. switched its listing from the Australian to the New York Stock Exchange, Malone secured a reported $1.5 billion worth of stock options that will increase his stake in Murdoch's firm from 9 percent to 17.1 percent by April.
News Corp. countered with a poison pill defense that prevents Liberty from increasing its position beyond 18 percent.
Similar styles of bargaining
The standoff between Murdoch and Malone marks a confrontation between two men with reputations for hard-nosed bargaining.
Murdoch and Malone partnered on a variety of past deals. The most significant may have been Malone's decision in 1991 to invest about $50 million in News Corp. It came at a time when Murdoch, on the brink of corporate bankruptcy, was struggling to keep from having to sell off parts of his empire.
"Malone and Murdoch are friends, but it is a particular sort of friendship, one in which taking the other by surprise and manipulating them into a corner is standard practice," said Neil Chenoweth, author of the book "Rupert Murdoch: The Untold Story of the World's Greatest Media Wizard."
In industry circles, both are regarded as innovators who early on recognized the importance of owning television programming along with the distribution platforms to carry it.
Along the way, both drew detractors.
Critics charge that Murdoch routinely has placed expansion before journalistic ethics, using his media properties to win political support for his business plans in the U.K., China and the United States.
More recently, media observers said Murdoch's Fox News and the New York Post slanted their coverage toward the Republican Party at a time when News Corp. was eager to win regulatory support to acquire satellite TV network DirecTV Group."Money doesn't motivate him, it's building and expanding," said Evans. "He has a driving ambition that won't be diminished even at his passing."
Malone, another consummate dealmaker, may be at a crossroads.
Besides its stake in News Corp., Liberty has accrued a hodgepodge of media properties, most collected since Malone sold the cable network Tele-Communications Inc. to AT&T Corp. in 1999 for $54 billion.
Liberty's properties include home shopping network QVC, the pay-movie channel Starz Encore Group and a 50 percent stake in Discovery Networks. None are as valuable as Liberty's position in News Corp.
With that in mind, it could be argued that Malone increased his News Corp. stake in order to guard his more valuable asset. If Murdoch were to suddenly die, the prospect of his children immediately filling the offices of chairman and chief executive could cause News Corp.'s stock to drop, Bibb said. "The Street is not overly enthusiastic about any of the Murdoch siblings taking over for Dad," Bibb added.
Malone downplays friction
Earlier this month, Malone downplayed any friction with Murdoch, telling investors that News Corp. is "the best run, most strategically positioned vertically integrated media company in the world."
Ideally, observers said, Malone would like an ownership interest in News Corp.'s global pay-television assets in China or Western Europe.
By stocking up on News Corp. shares, Malone is hoping to gain enough leverage to force Murdoch into an asset swap, or a merger of Liberty International into News Corp.
Either scenario might include Malone signing a "standstill agreement," thereby assuaging Murdoch's concerns about succession.
"Liberty has become a holding company for a bunch of illiquid cable networks that will decrease in value," said Jonathan Taplin, a professor at the University of Southern California's Annenberg School for Communication and a former vice president for media mergers and acquisitions at Merrill Lynch & Co. "He'd love to unload them on Murdoch."
For the moment, Murdoch isn't buying.
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