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Murdoch’s heir a bit less apparent

August 1, 2005

By Diane Mermigas

CHICAGO (Hollywood Reporter) – Even amid a flurry of
speculation about the reasons for and consequences of Lachlan
Murdoch’s abrupt, perplexing departure as deputy chief
operating officer of News Corp., a few things are clear.

Perhaps most important to shareholders is that News Corp.,
the only truly global media conglomerate, remains in the hands
of chairman and chief executive officer Rupert Murdoch and his
long-trusted lieutenant, president and chief operating officer
Peter Chernin.

Chernin has been designated by Rupert Murdoch to take
command in the event he no longer can function as chairman,
even though he would like to have one of his children at the
helm. There has been growing press speculation that differences
between Chernin and Lachlan contributed to the younger
Murdoch’s decision to leave.

Analysts say Friday’s announcement of Lachlan Murdoch’s
departure from daily operations will have no impact on News
Corp.’s strong business fundamentals and long-term outlook.
News Corp.’s stock barely budged Friday in response to the
news.

In a seamless transition, Chernin will assume direct
oversight of the traditional newspaper and TV station
businesses that Lachlan Murdoch managed, although the New York
Post will get a new publisher. That is why last week’s
unexpected executive shake-up does not make News Corp. more
vulnerable to the whims of its second largest shareholder, John
Malone and his Liberty Media, with whom it is trying to
negotiate an exchange or buyout of shares to thwart the
possibility of a hostile takeover.

Chernin, who never has stopped functioning as a strong No.
2 at News Corp. despite Lachlan Murdoch’s ascent in the company
in recent years, last year signed a lucrative new five-year
contract giving him and the company plenty of latitude.

While expectations naturally shift to younger brother James
Murdoch, 32, eventually taking over the family business (the
Murdochs control a dominant 30% of voting shares), there is no
telling whether he eventually will want or be right for the top
job. James Murdoch eventually will need to be brought into the
News Corp. corporate fold and given an executive title and
board seat. There already is speculation that News Corp. could
consolidate British Sky Broadcasting, DirecTV and other
satellite holdings to facilitate James Murdoch’ move to the
corporate ranks.

For starters, he could be asked to participate in News
Corp.’s second-quarter earnings call Aug. 10 as a means of
making him more familiar to Wall Street and filling the void
left by Lachlan, who was a fixture on the calls.

Despite the outside interest in the prospective heirs to
the throne at News Corp., Rupert Murdoch has made clear his
intention to continue ruling with an iron fist until he has to
be “carried out.” That means there remains plenty of time and
opportunity to continue with the rampant speculation about
succession, which at times has been vicious even inside the
company.

“We believe James Murdoch becomes the heir-apparent to his
father’s empire,” Merrill Lynch analyst Jessica Reif Cohen
wrote in a report Friday. “However, this remains a very
long-term issue, and we continue to expect Mr. Chernin to take
the helm of the company when Rupert Murdoch retires.”

For now, James Murdoch will continue as CEO of the publicly
traded, News Corp.-controlled BSkyB satellite service after
having built Asia’s Star TV into a satellite powerhouse, and he
is continuing to encourage News Corp.’s online activities –
representing two of the company’s primary future growth
drivers.

Indeed, the Harvard University dropout’s areas of interest
and expertise appear to put him in the right place at the right
time given News Corp.’s international and new-media expansion
plans.

James Murdoch currently is wrestling with ways to deliver
on a recent promise for BSkyB to restore 30% operating margins
by 2007 by taking a tougher pricing stance with film studios,
spending more on original production, giving subscribers
smarter set-top boxes and continuing to lift the company’s
morale and stock price.

“When James is ready to assume a role at the top of News
Corp., he will have great experience and the perfect set of
credentials to do it,” a high-level source said.

That Lachlan Murdoch remains on the News Corp. board of
directors and an advisor to his father means he won’t be going
far and eventually could return in some executive capacity. The
same is true of his sister, Elisabeth, who left News Corp. in
2001 to become an independent TV producer and head her own
British company, Shine. She has not ruled out eventually
returning to the family business.

Australian newspapers estimate Lachlan Murdoch’s personal
worth at $60 million in addition to his $1.5 billion family
stake in News Corp.

In a statement Friday, he expressed a desire to return to
his native Australia, where his wife, model Sarah O’Hare, and
young son, Kalan, reside in a $7 million home they recently
bought in Bronte, a seaside suburb of Sydney.

Rupert Murdoch also released a statement saying that he was
“especially saddened” by Lachlan Murdoch’s decision to leave
the corporate fold. Sources say Rupert Murdoch has spent the
past year trying to convince his son not to resign.

There is no doubt that the travails of the technologically
challenged publishing and TV businesses, the high-powered
environment of the office of the chairman, the occasional
differences with his father (some involving possible changes to
the Murdoch family trust) and the long commutes between New
York and his home in Sydney contributed to Lachlan Murdoch’s
difficult decision.

“Understanding family dynamics are more difficult to figure
out than corporate dynamics,” veteran Harris Nesbitt analyst
Jeffrey Logsdon said.

Others speculate that strain was created by James Murdoch’
growing international clout and high profile on new media and
Lachlan Murdoch’s direction over the more traditional
newspapers and television stations.

However, sources close to the company insist it was none of
that.

Clearly, the man who would be king has decided, for now,
that he does not want to play the game he must to eventually
win the brass ring at News Corp., despite his $4 million in
compensation last year.

Sources say Lachlan Murdoch likely will start his own
business or join another company to see what he can do on his
own — something he never has tried as an adult.

In an interview several years ago, Lachlan Murdoch recalled
how he gave up rock climbing while a philosophy student at
Princeton University after reading a biography about his
grandfather, an Australian print baron, and realizing he had a
higher calling that could be pursued by going to work for News
Corp. right out of school in 1994. He oversaw News Corp.’s
Australian operations before accepting the deputy chairman role
in 2000 that brought him more to New York and Los Angeles.

Lachlan Murdoch often has been portrayed by the press as a
closet daredevil who rides fast Ducati motorbikes, survived a
treacherous Australian sailing race, and sports a swirling,
Celtic-design tattoo on his left forearm.

His love of Australia, family and home is sincere. But
then, so is Rupert Murdoch’s passion to make News Corp. a
family dynasty and the world’s premier media company.

Reuters/Hollywood Reporter




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