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06.14.13

How Divorce Could Complicate Rupert Murdoch’s Business Empire

Personal matters aside, the mogul’s divorce could have a huge impact on his media empire. Peter Jukes on the succession drama brewing at News Corp.

It was not the split everyone expected.

Two weeks before Rupert Murdoch was due to split the world’s second-largest media conglomerate into two new companies (21st Century Fox and a period-free News Corp), the announcement on Thursday that he was filing for divorce from his third wife, Wendi Deng, came as a shock.

There were reports that the 12-year marriage was on the rocks two years ago, according to the former Financial Times chief media correspondent Ben Fenton, but these were denied at the time and overwhelmed by the phone-hacking scandal that erupted weeks later. Sources close to Deng explained to The New York Times a year ago that the spouses were effectively leading “separate lives,” but that was after she so deftly defended her husband in Parliament from a foam-pie-throwing protestor as he answered questions from MPs about the phone-hacking scandal that had just shuttered his bestselling Sunday tabloid, News of the World.

Whatever the personal background, it’s unlikely that the timing of the announcement is purely driven by emotion. Murdoch, who has always evinced a dislike of royalty, has nevertheless designed the world’s second-biggest media conglomerate as a dynastic empire. Since the two new companies will continue to be controlled by a family trust in which Murdoch’s six children have an interest, questions of marriage and succession remain as charged and difficult for Murdoch as a season of Game of Thrones.

Phone-hacking allegations were followed by more than 100 arrests, mainly of staff and informants for his bestselling daily Sun newspaper. This coming September, Murdoch's close aide and protégé Rebekah Brooks and other senior newspaper executives face a very public and potentially revelatory trial for charges including phone hacking, payments to public officials, and alleged destruction of evidence. The U.S. Department of Justice is in the final stages of what (from stock write down) could be the biggest corporate fine since the Michael Milken and Drexel Burnham scandal.

It’s hard not to see the divorce announcement as part of a wider strategy. In 1998, when Murdoch announced his divorce from his second wife, Anna, after 31 years of marriage, no reason was given for the breakdown. A year later in June 1999, a few months before his marriage to Wendi Deng, Murdoch sold $150 million of stock and settled his divorce with Anna for $110 million in cash plus other assets. In the last two years, according to The Wall Street Journal, Murdoch has sold all his nonvoting stock and raised over $140 million in cash.

Deng and Murdoch’s prenuptial agreement was ratified by Jacqueline Silverman, head of the matrimonial division of the New York Supreme Court. Subsequent written agreements followed the birth of their two children, Chloe and Grace, in October 2002 and June 2004. (Though she was an employee of News Corp.’s subsidiary Star TV in Hong Kong when she met Murdoch, Deng has never sat on the company’s board unlike his previous wife.)

A battle of the airwaves could be about to commence.

As the proprietor of tabloid titles such as News of the World and the New York Post, Murdoch has made as his stock in trade the personal scandals of celebrities, royals, businessmen, and politicians, so he understands better than most the potential pitfalls ahead.

A year after his marriage to Deng, in November 2000, The Wall Street Journal published a 4,000-word front-page article that probed into her past and former relationships. Murdoch was reported to be furious. After a long campaign exploiting divisions in the Bancroft family. who then owned the Journal’s parent company, Murdoch acquired the publisher for $5 billion in 2007. For six years the Deng article was buried in the archives—until Thursday, when it was linked to a report of the imminent divorce.

So a battle of the airwaves could be about to commence during the tough negotiations over a settlement. Already the rumor mills and PR spin machines seem to be in operation. As reported by Robert Peston, the BBC’s financial correspondent, and close to senior News Corp. executives, “the undisclosed reasons for Murdoch divorcing Deng are jaw-dropping.”

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Murdoch’s biographer Michael Wolff suggests that the older children from his two previous marriages never trusted Deng so the split may actually help his plan to pass on control of parts of his company to the next generation. Both Lachlan and James Murdoch have spent time in New York being groomed for the succession. And by virtue of the company’s $650 million acquisition of her media company, Shine Entertainment, Elisabeth also has a right to sit on the board, which she has yet to exert.

Deng was also more liberal in her tastes than the 82-year-old Australian. She includes in her circle celebrities like Nicole Kidman and Hugh Jackman, who are godfather to Grace and Chloe, along with Tony Blair. According to The Hollywood Reporter, a spokesman for the former prime minister flatly denies rumors that Deng and the former prime minister had any kind of inappropriate friendship. ("If you are asking if they are having an affair, the answer is no.")

While celebrities and politicians generally have to suffer the media spotlight, those who control it often know where the off switch is and can escape the glare of public attention in their private lives. But given the horrendous two years Murdoch has suffered, and the depletion of much of his political—if not his financial—capital, the privacy he would normally be accorded may be more difficult to enforce this time around.

As the foremost media player of his generation, it would be foolish to think the 82-year-old doesn’t have many more moves left to play. But this could be more of drawn-out endgame for Murdoch.