01.24.11

Rupert Murdoch's Family Reunion

The mogul is working to bring daughter Elisabeth back to News Corp. with a deal to purchase her production company, Shine Group. Peter Lauria looks at Rupert's "master plan" for keeping the media empire in the family.

Rupert Murdoch may soon be reunited with his daughter, Elisabeth, at News Corp.—and the return of his eldest son, Lachlan, might not be too far behind.

The News Corp. patriarch is spending this week in London seeking approval for his $12 billion takeover of pay-TV provider BSkyB and dealing with continuing fallout from the News of the World phone-tapping scandal, as press reports have noted. But a third business item on his agenda is to finalize the terms of News Corp.’s acquisition of Liz Murdoch’s production company, Shine Group, according to more than a half dozen sources inside or close to both companies—all of whom requested anonymity because they were not authorized to speak publicly about the deal or succession planning at News Corp. Shine Group produces such hit shows as MasterChef and The Biggest Loser.

“This deal is going to happen and it is going to happen fast,” said one source inside Shine who put the time frame in terms of weeks, not months. “This is the first step towards [Murdoch] setting the kids in place at News Corp.” A News Corp. representative declined comment for this story. A Shine representative confirmed that the company has hired JPMorgan Chase to explore strategic options, but declined to comment further.

Sources cautioned that, as with any deal, talks could break down at the last minute. But they added that Murdoch’s desire to bring his daughter back to News Corp., combined with Elisabeth’s motivation to sell, will likely overcome any unforeseen obstacles to a deal.

Murdoch turns 80 in March, and sources inside News Corp. say his main goal is to figure out a way to return Elisabeth, 42, and Lachlan, 39, to the company and divide up the empire between them and their youngest brother, James, 38, who is the only Murdoch child currently working at News Corp. According to sources, Murdoch and his three children have been actively talking for months about potential ways to work together again. (Murdoch’s eldest daughter, Pru, 52, is not involved in the family business, though she will inherit part of the family’s 37 percent voting control of News Corp. along with her three siblings. Grace, 10, and Chloe, 8, the two children Murdoch has with current wife, Wendi Deng, will inherit a financial interest in News Corp. but have no voting control.)

According to a second source with close ties to Murdoch, the patriarch has talked in the past about a scenario in which Elisabeth would oversee News Corp.’s entertainment assets; James would continue as head of News Corp.’s European and Asian assets, with a focus on its satellite and distribution operations; and Lachlan would be brought back to lead its newspaper assets. Under that plan, Chase Carey, News Corp.’s current president and chief operating officer, would remain as Murdoch’s top lieutenant, serving as a policing agent who can provide objective oversight of the siblings until a successor is ready to be named.

“They are working together as a group on a master plan,” says one of the News Corp. insiders. Indeed, subtle hints have emerged in recent months that lend credence to the “master plan” theory. All three kids recently had a meeting in London, for instance, says a third source with knowledge of the gathering. Elisabeth and Lachlan also attended the Consumer Electronics Show in Las Vegas together this month. And in October, Rupert took what sources viewed as the unusual step of bringing James with him on his annual pilgrimage to Australia, where Lachlan spends much of his time these days.

A window opened for Murdoch to achieve his longstanding dream of working with his children again when a confluence of events in the television industry conspired to put Shine on the block. Consolidation of independent production companies in recent years has resulted in a dearth of targets for Shine to acquire. (To be sure, Shine itself was a big driver of that consolidation, buying Reveille, Dragonfly, Metronome, and Princess Productions, among others, in the last few years). In turn, the competition among buyers for the remaining companies has driven up prices to the point that Shine could potentially fetch more than three times its $420 million in earnings last year, or around $1.5 billion. Lastly, Sony Pictures Entertainment essentially forced Shine’s hand last year when it announced that it was seeking a buyer for its 21 percent stake in the company.

“Rupert would love to have Lachlan back running newspapers,” says a former News Corp. insider. “It is the part of the company that he thinks Lachlan knows how to operate better than anyone.”

Liz resigned from News Corp.’s BSkyB in 2000 amid tensions with her father, the only Murdoch child to leave the company voluntarily. She declined an offer to join News Corp.’s board last year because it would have excluded Shine from receiving 25 percent of the programming budgets that big British broadcasters like BBC or Channel 4 are required to spend on independent programmers—funding that accounts for a large portion of Shine’s revenue. Nonetheless, she has been taking on a larger behind-the-scenes role at News Corp. She has sat in as an “observer” at several company board meetings and was the singular voice that convinced her father to air American Idol, which has ranked as the highest-rated show on television since its debut nine years ago.

Although Rupert Murdoch has not officially named a successor, sources say Liz’s imminent arrival at News Corp. isn’t expected to threaten James’ position as heir apparent, partly because he’s the one who stuck with his father and has the biggest presence among the siblings inside the company, and partly because she is understood to be more interested in content creation than being CEO of the company. “It’ll be hard for Liz to challenge James’ authority,” says a source close to the siblings.

James has been very supportive during internal talks about Liz coming back to the company, but he has also been chomping at the bit to be formally named as his father’s successor, if for no other reason than to stop the continued speculation about who will eventually run News Corp. “There’s no way James can pipe up against Rupert even if he wanted to, so you have to look into his soul to know if he’s really on board with the move,” this source says.

Once the Shine acquisition is completed, sources say Murdoch hopes to woo Lachlan back to the company. That will perhaps be his hardest challenge, as Lachlan was pushed out of News Corp. in 2005 in part by his father. Although Lachlan remains on the News Corp. board as a non-executive director, sources say he has been resistant to the idea of going back to the company on a permanent basis. “Lachlan got tired of Rupert constantly criticizing and infantilizing him,” says a former News Corp. insider.

Shortly after leaving News Corp., Lachlan established a company called Illyria to acquire media and entertainment companies. But aside from a few small deals for television and radio stations, he hasn’t made as big an impact on his own as Liz has, which led sources to speculate that he could be convinced to come back into the fold.

A newspaperman at heart, Murdoch still prizes the ink-and-paper part of the company that most analysts and investors despise. Lachlan oversaw many of News Corp.’s newspaper assets during his time at the company, including leading the money-losing New York Post past archrival tDaily News in circulation during his time as publisher. That immensely impressed his father, who thinks that Lachlan is the best-suited among his children to lead the company’s legacy newspaper operations.

“Rupert would love to have Lachlan back running newspapers,” says the former News Corp. insider. “It is the part of the company that he thinks Lachlan knows how to operate better than anyone, and I bet now that some time has passed he can be convinced to come back to the company.”

Though Murdoch has always viewed News Corp. as a family business, it has only been that in theory, not practice. Now, however, he is closer than ever to making his vision a reality.

Peter Lauria is senior correspondent covering business, media, and entertainment for The Daily Beast. He previously covered music, movies, television, cable, radio, and corporate media as a business reporter for The New York Post. His work has also appeared in Avenue, Blender, and Media Magazine, and he's appeared on CNBC, Bloomberg, BBC Radio, and Reuters TV.