Rupert Murdoch to Drop Fox CEO Title: Wall Street Reacts
Analysts say the move continues the elevation of the mogul's sons, but some investors will have governance concerns given that the top level of management will be in the hands of the Murdoch family once Chase Carey leaves.
Wall Street analysts on Thursday weighed in on Rupert Murdoch's plans to leave the CEO post at 21st Century Fox to son James Murdoch, describing it as the latest step in the latter's continuing elevation and a signal of continuity.
But some also raised governance concerns given the moves tighten the Murdoch family's grip on the company.
The stock of the entertainment conglomerate didn't move much on the news, suggesting investors had also expected it sooner or later. As of 12:15 p.m. ET, it was down 1 percent to $32.63. It ended the day down 0.2 percent at $32.90. CBS Corp. shares fell 1.2 percent, while other big entertainment stocks posted minimal gains.
Observers said Wall Street had widely expected James Murdoch to take over the CEO reins one day, making for little surprise beyond the timing. Some said they had expected the change in management to be announced next year though, closer to the time when president and COO Chase Carey's current employment contract expires in June.
Last spring, Fox elevated the other Murdoch son, Lachlan Murdoch, to the role of nonexecutive co-chairman and promoted James Murdoch to the post of co-COO. At the time, observers said that the changes looked designed to make Lachlan chairman one day down the line, with James likely to oversee day-to-day operations as CEO.
"It has been pretty clear all along that Rupert has intended to hand the company over to James at some point," said Cowen & Co. analyst Doug Creutz in a report. But, he added, "while we are willing to give James the benefit of the doubt that he can be a competent CEO until proven otherwise, the fact that the company remains a family-run business remains a significant obstacle to our willingness to become more constructive on shares."
Analysts highlighted that Rupert Murdoch will continue to control the conglomerate, via a family trust that holds a 39.4 percent voting stake, and remain chairman. And they emphasized that Carey, a Wall Street favorite, would stick around at least for a while in a role that wasn't immediately clear. But once he leaves, it will mark the first time that no non-family member will be part of the highest executive level at Fox.
"While the move could rekindle some governance reservations, we think the expected generational transition marks the strongest indication yet of management succession for the Murdoch family-controlled company," said Tuna Amobi, analyst at S&P Capital IQ on Thursday.
Wall Street observers said James Murdoch in particular has become better known and understood on the Street. "James Murdoch has [had] increased visibility in the U.S." in recent years, strengthening the case for his rise to the CEO post, said one Wall Street observer who didn't want to be named on Thursday.
Wunderlich Securities analyst Matthew Harrigan previously told The Hollywood Reporter: "Both James and Lachlan are very talented and familiar with the businesses, even if some find their initial opportunities suspect."
"James Murdoch was elevated to co-COO in March 2014, while co-COO Chase Carey has remained quiet about his future," Macquarie Securities analyst Tim Nollen said in a recent report that came just days before the news on Thursday. "While Carey has been a respected leader for some time, we sense investors are getting more comfortable with James Murdoch, who has led Fox’s Star Asia and former BSkyB operations, and hence we think any change at the top would seem pre-ordained anyway."
On Thursday, he said: "Investors have anticipated this announcement for some time, so we do not expect much of a stock reaction."