Murdoch vs. Iger: How Much Power Could Rupert and Sons Wield at Disney?
The Disney CEO, 66, is set to exit in 2019, though he could stay longer if a deal for 21st Century Fox's major assets is struck.
A deal in the works that could have The Walt Disney Co. purchasing up to $60 billion worth of 21st Century Fox’s assets would make Rupert Murdoch and his sons major Disney shareholders with outsize power over important decisions, including who would succeed current CEO Robert Iger, insiders and observers speculated on Wednesday.
Iger, 66, is set to exit in 2019, though if a deal is struck that involves Fox selling its film studio, some cable channels, and its stake in Hulu and the European satellite TV service Sky to Disney, it might come with an assurance that Iger remain beyond his planned retirement date.
The deal under discussion involves cash and Disney stock that would flow to Fox shareholders, and it could make the Murdochs Disney’s largest individual shareholders, just as Steve Jobs had been after the late co-founder of Apple sold Pixar to Disney for $7.4 billion in 2006. (Jobs' widow sold half her Disney shares earlier this year.)
Just as Jobs was added to the board, analysts speculate that Disney would add both James and Lachlan Murdoch, Fox’s CEO and co-executive chairman, respectively, and possibly also add Rupert, who has the co-executive chairman title at Fox.
Insiders say that the Murdochs are jockeying behind the scenes for as much power as they possibly can extract from Disney, which is anxious to acquire Fox’s rights to some Marvel movies, Avatar sequels, regional sports networks and such premier cable TV brands as FX as it gears up to launch a streaming offering that is meant to compete with Netflix and Amazon.com.
The Murdochs would be minority shareholders at Disney, of course, though they are negotiating for certain veto and approval powers over big decisions, which could include the naming of a CEO when Iger retires.
Several outlets are reporting that James Murdoch, who at 44 is 22 years younger than Iger, might want the position while Lachlan and Rupert take control of what’s left of Fox, which would include certain sports assets, the Fox broadcast network, Fox News Channel and Fox Business Network.
The Disney-Fox negotiations over power are commonplace, says Larry Hutcher, a corporate governance specialist with the Davidoff Hutcher & Citron law firm. “They’ll likely want assurance that their minority voices will be heard on issues involving hiring, the sale of assets and large expenditures,” he says. “They’ll want to ensure key rights even if the board is expanded. They may have a checklist.”
Also needing to be hammered out is something new in Hollywood transactions: specific indemnity for sexual harassment claims, involving executives and talent alike, that could materialize after a merger is closed. “What every buyer worries about is the unknown,” says Hutcher. “Lawsuits can go up the chain to the board of directors, which is what is happening with The Weinstein Co.”
But first, Disney needs to beat out competing proposals from Comcast and perhaps others, then it needs approval, which is “no regulatory walk in the park,” says Steven Cahall of RBC Capital markets.
Citing the Department of Justice’s decision to file a lawsuit to block AT&T’s planned $85.4 billion acquisition of Time Warner, he argues that “the new DOJ has yet to make clear how it is approaching media consolidation.”
Cahall adds, though: “We think the exclusion of sports and broadcast assets from any talks is potentially a nod to antitrust concerns.”
Many on Wall Street also expect the combination of the Disney and Fox film and TV studios to get a close look from regulators. “There may be some degree of anti-trust problem on the theatrical side,” Sanford C. Bernstein analyst Todd Juenger says. Juenger uses what’s known as the Herfindahl-Hirschman Index, a commonly accepted measure of market concentration, which he says registers a high score that is “potentially troubling.”
“The studio could prove thorny with theater groups likely crying foul,” echoes Cahall. “Though studios can argue that the world has moved beyond the theatrical window with Netflix and Amazon creating a new definition of competition and appropriate scale.”
CFRA Research analyst Tuna Amobi similarly argues that the ownership of two studios by one company could “raise some U.S. antitrust questions, though [is] probably not a deal breaker, and in any event the studio labels will likely continue to operate autonomously.”
What regulators might tell Disney to do with its 30 percent stake in Hulu after adding Fox’s 30 percent stake is also an issue, says Cahall: “Restrictions on Hulu would seem likely à la Comcast/NBCU,” which has been a passive co-owner of Hulu. And Amobi believes that Fox’s regional sports networks also “could invite additional regulatory conditions,” should those be included in Disney’s acquisition.
National Geographic and FX should be part of the transaction. James Murdoch boasted Tuesday at an investor conference of the growth potential for the former, but some analysts wonder if the latter is a good fit with Disney. “They offer edgy, distinctive content that has potential to stand out in an OTT setting,” says Juenger. On the other hand, he adds: “These programs are more R-rated than any of Disney’s movies. American Horror Story, Sons of Anarchy, Louie on a Disney-branded service? That’s not what most consumers would be expecting.”
Down the road, Rupert and Lachlan Murdoch may want to recombine what remains of Fox with News Corp, which owns newspapers like The Wall Street Journal and the New York Post. Indeed, a few years before Rupert Murdoch split News Corp from Fox, he said he couldn't understand why Sumner Redstone wanted to split CBS from Viacom, suggesting he was never fully on board with the idea of splitting his conglomerate in the first place.