Nothing like Murdoch family business machinations to fuel speculation about motives and outcomes and so it is with the news that, nine years after splitting the empire in two, the Murdochs want to re-merge them.
Cue references to Lachlan’s ambitions and succession planning and Succession – the TV show about a Machiavellian media mogul who is not based on Rupert Murdoch. (I don’t think the script writers ever suggested Logan Roy was backing Donald Trump and embedding climate denialism in Australian conservative politics.)
What the speculation has overlooked is that the Murdoch organisation has plenty of form when it comes to reorganisations.
This would actually be the second re-merger after a major split and one of several significant reorganisations. The Murdoch family manoeuvrings have made investment banks and lawyers rich – and kept those investment banks in the News Corp cheer squad in the process.
Only members of the Murdoch inner circle know what the expensive re-merger is really about and they won’t be telling. News Corp and Fox Corp shareholders willing to be passengers on the Murdoch machine will be spun some sort of a line about adding value and go along for the ride.
But someone with intimate and costly knowledge of the way such reorganisations operate has suggested what might be possible in such an exercise. It’s purely a matter of opinion, of course, and hypothetical.
“Those reorganisations serve quite useful corporate purposes,” private fund manager and former media analyst Mike Mangan wrote on Monday in his newsletter.
“They can shield assets from pesky courts. All legal, of course.”
Mike Mangan has analysed a Murdoch re-merger before. It cost him his job and more.
“On this occasion it might also assist estate planning. Perhaps it relates to the $US4.4 billion Dominion and Smartmatic defamation suits against Fox,” he wrote.
“That case goes to trial in Delaware next April. Whatever the reason, these reorganisations provide opportunity for plenty of accounting hocus pocus. All legal.
“Provisions raised, shared, pre- or post-consolidation – OldCo, NewCo. It becomes impossible for outsiders to work out what went where. Or simply disappeared.
“All sorts of fun and games. All legal … If you want to hide some losses, a regular reorganisation or five, is the way to go. Again all legal. And brilliant.”
‘Sell’ signal
I’ve known Mr Mangan for some decades, back when he was crazy brave enough to put a “sell” signal on News Corp.
In Monday’s newsletter he provided valuable history and an account of the personal cost of that “sell”.
“Back in the late nineties Fox was spun out of News Corp [trading as NWS]. From memory Fox became a tracking stock,” he recounted.
“At that time NWS breathlessly announced this would allow investors to better value the two cousins.
“So NWS was print focused; Fox was TV. Then in 2005 NWS decided the two cousins were compatible after all.
“Something about ‘scale’ and ‘unparalleled’ set of assets. So back they came together. That ‘05 coupling is imprinted across my forehead.
“Based on this NWS/Fox re-coupling, I downgraded my one-year NWS recommendation to “SELL” on 10 Jan, 2005.
“My rationale was that NWS was issuing 330-360m new pieces of paper. Those NWS shares would be used to buy back the Fox shares it didn’t already own.
“I reasoned this would overhang the market for a year or more. Hence ‘SELL’.”
Correct reasoning
Mr Mangan’s reasoning was correct. As it digested Fox, NWS underperformed across most of 2005.
“But I never enjoyed my moment of glory. Immediately after downgrading NWS I was retrenched.”
Well, 11 days to be exact. Mr Mangan was enjoying a holiday on Pittwater with his wife and three children when the phone rang – it was his boss and he was unemployed.
“As it turned out that was our last family holiday together. Which is another reason why the episode is embedded on my brain.
“My dismissal triggered a slow-burn implosion that led inevitably, irrecoverably, inescapably to divorce. But that was all in the future.
“I should frame the above for my kids. It’s a career death sentence. And a divorce notice. All neatly wrapped in one package.
“Whilst trying to add value, I spent my entire 13-year broking career worried. Worried I’d write something that would place me in jeopardy.
“Before publishing I would often ask myself, ‘Can this end in tears?’ Could I be sued out of existence, jailed or best case fired? In the end I copped the latter.”
It’s a very rare analyst who admits this reality. There are vast amounts of money at stake for investment banks to stay on the right side of big companies.
“As I later realised, I’d been walking a tightrope for years; a fine line between survival and disaster,” wrote Mr Mangan. “In my view, it was a 4 letter expletive that pushed me over that line: ‘SELL!’
“To be ‘fair and balanced’, NWS swore they had nothing to do with my demise.”
Another split
And in 2013, the two News cousins again separated.
“This was amidst the fallout from the London phone hacking scandal. Many thought that separation would protect the more valuable Fox assets from the courts.”
The 2005 call was not the first time Mr Mangan had put a “sell” on News Corp. He did it for a different employer when the dot com bubble was bubbling, but was too early – NWS shares kept rising.
Until they started falling, but there was no reward for being right. The opposite – nobody wanted the bad news. He was toast.
“So in 2005, I knew I was putting my hand in the fire.
“After I was dispatched to the sheds in early 2005 I was unemployable. Later that year this was noted by none other than Rupert himself in his New York AGM.
“The most powerful man in the world was keeping abreast of my employment status.”
Mr Mangan says there turned out to be a happy ending after being fired.
“Across 13 years analysing NWS I lived a couple of lifetimes. The stress of trying to keep track of all NWS’ shenanigans without being throttled was slowly killing me. On one OS marketing trip I lost eyesight in one eye.
“Flying around North America with an eye patch, I looked like a pirate. I removed the patch for client meetings. Then put it back on again outside. Around the same time my back packed it in.
“Think one-eyed hunchbacked pirate, with uncontrollable nose bleeds for good measure. The doc reckoned my immunity was failing. To borrow some military slang, I was a ‘shot unit’.
“So from a personal point of view my retrenchment probably saved my life. I have more energy in my 60s than I had in my mid-40s.
“Once you’ve stared down death, in this case career death, the magnitude of other life problems melt away. It’s a rebirth. The trick is surviving! That’s the hard part!
“And I got the call right. Wonder if my clients ever appreciated that.”
The lesson is to take whatever is spun about the Murdoch re-merger with a grain of salt. Ditto the opinions of friendly analysts.
