An Issue of Trust for Murdochs Talk of Giving Control to 2 Youngest Children Adds to Friction

Wendi Deng, the wife of the media executive Rupert Murdoch, and Anna Murdoch Mann, Murdoch’s former wife, have a seemingly cordial relationship.

They see each other at family gatherings, like the weddings of Anna and Rupert’s three children and christenings of grandchildren, people who are close to the family say. Rupert Murdoch’s two younger children with Deng, his third wife, play frequently with the grandchildren he shares with Mann, his second wife, who has remarried.

But despite the family get-togethers, an underlying tension is growing over eventual control of News Corp., the globe-spanning company that Murdoch has built over four decades, with Deng and Mann playing crucial roles.

A simmering debate over the trust that owns the family’s 28.5 percent voting stake in News Corp., the AE Harris Trust, surfaced with the resignation last week of Lachlan Murdoch, the elder son of Mann and Rupert Murdoch, from his job at the company, where he was a potential successor to his father. The precipitating reason for Lachlan’s departure, he has told several people, was his father’s undermining of his position within the company over a long period.

People close to both father and son have also acknowledged, however, that tensions over the trust were a factor, tensions stemming from the conflicting maternal ambitions of Deng and Mann. Last year, Murdoch told his children that he wanted to change the trust to give his two daughters by Deng Grace, 3, and Chloe, 2 a greater role in the trust, which has an interest in News Corp. valued at $6.1 billion

But Murdoch’s four adult children three with Mann and one with his first wife have a say in the trust and are its primary beneficiaries, and they must approve that change.

While the older Murdoch children do not object to granting their two young half-sisters a greater share in the inheritance, they have balked at giving them an active or voting role in the trust, these people say. One person close to the Murdoch children said Deng was driving for her children to have equal standing, which Murdoch denied. A spokesman for Murdoch, however, said, “It was his decision, and it’s always been his belief, that all his children should share equally.”

The terms of Rupert and Anna’s 1999 divorce were designed to prevent Murdoch from having the power to make such changes in the running of the trust, Mann’s divorce lawyer, Daniel Jaffe, said. “One of the key factors in the divorce negotiations was to assure that they are trustees and nothing can be done without their consent,” Jaffe said in a telephone interview on Monday.

The Murdoch children have agreed that the trust could be changed to include their half-sisters financially but objected to the half- sisters’ sharing control of the company, a person close to the family said. Murdoch and Deng declined to comment, as did Mann, the Murdoch children and company spokesmen.

In practical terms, the four adult Murdoch children’s power over the AE Harris Trust gives each of them Prudence, 46, from Murdoch’s first marriage; and Elisabeth, 36; Lachlan, 33; and James, 32, from his second marriage the power to appoint a trustee with one vote each. Murdoch has four trustees and votes that are to expire upon his death.

James Murdoch is the only child still active in the company, serving as chief executive of British Sky Broadcasting, the London- based satellite company that is 34 percent owned by News Corp. Elisabeth left her job at BSkyB in 2000.

Murdoch was married to Anna, a former newspaper reporter whom he met in Australia, for 31 years. Deng, a native of China who has a master’s degree in business administration from Yale, was an executive at the corporation’s StarTV division in Hong Kong when she met Murdoch in the late 1990s.

Because Mann had played a major role in Murdoch’s life while he built the company and was a director of News Corp., speculation surrounding the divorce was that she could be entitled to as much as half of his interest. But Mann, who knew of Murdoch’s relationship with Deng before the divorce, preferred a settlement that would establish the children’s future control of the media empire. After the divorce, Murdoch married Deng, and Anna married William Mann, a banker.

The children’s stance on the trust, legal specialists say, appears consistent with maintaining the spirit of their parents’ divorce agreement.

“It does not matter who can get money from the trust,” said William Zabel of the law firm Schulte Roth & Zabel, who has handled many high-profile divorces. “Control is the key power because that determines ultimately how the money flows.” In the six years they have been married, Deng has been a constant presence at Murdoch’s side. She quit her job but remains active in the company.

After the birth of their first child, Murdoch said glowingly that he had put off plans to retire “forever.” In April, Deng stood behind him at the Four Seasons restaurant where he toasted Jack and Suzy Welch at a party for their book “Winning” and made a wry joke about the Welches’ age difference of more than two decades. (At 74, Murdoch is 38 years older than Deng.) Deng accompanies Murdoch to premieres and parties in Los Angeles, where he oversees the 20th Century Fox movie studio and Fox television businesses. In July, Deng, along with some other wives of media executives, sat in on the panel discussions at a media conference in Sun Valley, Idaho, to which the couple brought Grace and Chloe. When not traveling on business, Murdoch and Deng divide their time among homes in New York City, Los Angeles, Carmel, California, and Centre Island, New York. Friends of the Murdochs described Deng as an involved mother who also has a strong understanding of the company’s business. One media executive recalled visiting the couple at their home in Centre Island. He said that in conversations, Deng indicated that she was not only familiar with the News Corp.’s operations in Asia, but also with its rivals’ Asian businesses. Meanwhile, people close to the family emphasize that even with Lachlan’s departure and the uncertainty over the trust issue, the Murdochs remain in close and constant contact with one another.