The Journal. - Rupert Murdoch’s Succession Drama Goes to Court

Episode Date: September 17, 2024

This week, a trial got under way to determine whether Rupert Murdoch can change a trust holding the family’s assets for his children. Murdoch wants to ensure that when he dies control of the trust passes to his oldest son, Lachlan. Three of his other children, James, Elisabeth and Prudence, oppose the change because they would stand to lose voting power. Amol Sharma reports.  Further Listening: - Media Giant Rupert Murdoch Is Stepping Down  - Behind the Breakup of Fox and Tucker Carlson  Further Reading: - The Family Rift Driving Rupert Murdoch to Redo His ‘Irrevocable’ Trust  - Murdochs Face Off in a Reno Courthouse Over Family Trust  Learn more about your ad choices. Visit megaphone.fm/adchoices

Few succession dramas have been watched more closely than the one surrounding Rupert Murdoch's media empire. It was a long-running question. I mean, for the past 20 years or so, people have been wondering who would succeed Rupert, and each of his sons seemed like the heir apparent at various points. That's our colleague Amol Sharma. When Rupert retired from the boards of his companies last year, Amol said it felt like the world finally had an answer. What's really at stake here is succession. So it was a really big moment. He was

stepping back and it was symbolically was sort of transitioning power To his oldest son Lachlan breaking news this morning a new line of succession at Fox News Lachlan Murdoch will become News Corp sole chairman and continue as Fox's chair and CEO This is a historic day. I mean what a time of transition for this news network Lachlan was the chosen son. He was now the head of the multi-billion dollar family business, which includes Fox News, Fox Sports, and News Corp, the parent company of the Wall Street Journal.

And did it seem at that moment like it was over, like the decision had been made, it's Lachlan? I think on its face, you looked at it and said, wow, clearly Loughlin is his favored leader. But people who follow this stuff closely and have paid attention to the companies know that the real power in the Murdoch empire is in this family trust.

The Murdoch family trust controls about 40% of the voting shares for both Fox and News Corp. And right now, Rupert alone has that control. But that changes when the 93-year-old dies. According to the trust, Rupert's voting control will be split evenly between Lachlan and three of his siblings. And so the trust itself didn't change last fall. So we were looking at each other and I was calling around and asking folks I know close to the companies, are they changing the trust?

Is Loughlin getting control of that? It turns out Rupert is trying to give Loughlin control of that trust, but those three other siblings are fighting back. This is about who's gonna control a sprawling business empire. And this is basically the series finale of this long running succession battle.

Welcome to The Journal, our show about money, business and power. I'm Ryan Knudson. It's Tuesday, September 17th. ["The Legal Fight"] Coming up on the show, the legal fight over who will control the Murdoch Empire. I'm going back to university for zero dollar delivery fee, up to five percent off orders and five percent Uber cash back on rides.

Not whatever you think university is for. Get Uber One for students. With deals this good, everyone wants to be a student. Join for just $4.99 a month. Savings may vary. Eligibility and member terms apply. While the Murdochs have said nothing publicly about this case, Amal and his team of reporters spoke to a number of people familiar with the conflict to piece together the years of tensions that led to this court battle.

The trust at the heart of this legal dispute dates back to Rupert's 1999 divorce with his second wife. Basically, she wanted to make sure that her children, Lachlan, James, and Elizabeth, would have an ownership stake in the Murdoch businesses in the future. And so an irrevocable trust was created that gave them some authority in the future once Rupert dies. And what does it mean when a trust is irrevocable? It just means that it's somewhat challenging to alter the trust plan. There's some bar that you have to meet.

In this case, there's a term in this trust that would allow Rupert to make some changes if he can show it's in the best interest of all stakeholders. So is this kind of irrevocable trust unusual? It's not unusual to have a trust like this, nor is it that unusual to try to change a trust. It's just that usually those changes are minor. It's usually not a change to determine who controls the multi-billion dollar media empire. So this is definitely unusual as far as trusts and estate cases go. Rupert has a total of six children from different marriages, but the trust says that only the oldest four will inherit voting power and therefore control of their father's businesses.

Basically, as it's worded now, if Rupert were to die, his four oldest children would each have an equal voting share in the trust. So that would mean they would have to vote on any major strategic decision. Major strategic decisions include things like whether to sell the company or buy a competitor and who gets to sit on the company's board. The true power in the Murdoch Empire is in this family trust. That's where the holdings in Fox and News Corp lie. So the question of succession has always been, who will control that trust?

Although Rupert formally gave his oldest children equal power in the trust, it didn't end up preventing competition between siblings. Specifically, when it came to the question of who would call the shots at his companies once he retired. For years, that competition seemed to be between Rupert's two sons, Lachlan and James. Both of them had a lot of experience and also had their own, you know, individual dramas or trouble points along the way. So Lachlan Murdoch, the older one, he started in the company in 1994. He rose through the ranks to a fairly senior executive position.

And then in 2005, when he was feeling somewhat undercut by his father on some business decisions and wasn't happy at the company, he left and went back to Australia to live there, got involved in other business ventures. Meanwhile, younger brother James started a hip-hop label after dropping out of Harvard. But by the mid-1990s, he'd also made his way over to News Corp. He also rose through the ranks of News Corp and had different positions in Europe and Asia over the years, rising to a pretty high level. He was overseeing the UK publishing division when this big phone hacking scandal was erupting

more than a decade ago. There were building tensions between James and Rupert for years, but they really started to accelerate around the time when Rupert sold a big chunk of Fox to Disney in 2019. The Walt Disney Company is buying a large portion of 21st Century Fox that includes its movie and TV studios, the Hulu streaming service, and a number of hit franchises. The deal was announced this morning by Disney CEO, that's Bob Iger. The expected value is about $52 billion. And when that happened, James had designs on getting a senior role at Disney. That didn't happen.

And I think he was disappointed at that. Tensions deepened when Rupert asked each of his four oldest children to give him part of their roughly $2 billion payouts from the Disney deal. Lachlan, Elizabeth, and Prudence did so as a sign of respect. But James refused. James' tenure as the CEO of Fox ended after the Disney deal. And a year later, he resigned from the board of News Corp. He was critical of his father's businesses in his resignation letter, and even more pointed

in private. One major piece of tension was Fox News. James has been critical of Fox. He's told people he's disturbed by what he sees as this extreme right turn at Fox, particularly since the 2020 election. When Rupert proposed merging the two companies, News Corp and Fox, together in 2022,

James actually lobbied against the deal. He wrote letters to the boards of the companies laying out his objections, saying that it didn't make sense, saying it would contaminate brands in the company, like the Journal. And that was just another reason for the strains in this relationship. So what is James's relationship with his father like now? Well, it's really distant. They're not on speaking terms, is what we're told. But I think there's a sadness, you know, certainly from Rupert's side,

by all accounts, even though they don't speak, he's sort of sad about the way this is played out. James didn't come to his 90th birthday party a few years ago. So yeah, I think there's some sadness too. As James grew more distant from Rupert, Lachlan was getting closer. The older brother had returned to the business years earlier. After the Disney deal in 2019, he was named CEO of Fox and co-chair alongside his father. And then last fall, Rupert solidified Loughlin's leadership position when he stepped back, leaving

Loughlin the sole chairman of his companies. But to make sure Loughlin actually controls the companies after he dies, Rupert needed to make changes to that irrevocable Murdoch trust. That's next. Yesterday, Rupert Murdoch arrived at a court in Nevada where the Murdoch Family Trust is based to kick off legal proceedings over his family empire. Mr. Murdoch, are you confident of victory? Any comments? After he stepped down as chair of Fox and News Corp last year, Rupert filed the proposed

amendment to his trust. It said when I die, voting control of this trust should pass to Loughlin instead of passing to all four of my oldest children. James, Elizabeth, and Prudence, the other siblings, how do they all feel about Lachlan being chosen? They basically feel like if they are part of the family, this has been part of their inheritance all along. And if Lachlan is going to wind up being the one in control,

at the very least there should be some kind of economic transaction, some financial deal to buy them out of the trust. They shouldn't just be some kind of economic transaction, some financial deal to buy them out of the trust. They shouldn't just get written out of the trust, which is what Rupert is proposing to do. Why would Rupert want James and Elizabeth and Prudence, the other siblings, not to have control over the company? Well, for one, he was concerned that there would be paralysis in making any major decisions

if you had four people essentially making the big decisions about the future of the Murdoch business empire. He's also afraid that if James and his sisters were aligned with one another, that they could sort of gang up on Loughlin three-on-one and prevent him from running the company, or they could push for big changes at Fox News, try to make it more centrist, try to make it, you know, maybe that would undermine its appeal to conservatives.

At least that's what Rupert's fear was. Why doesn't Rupert just pay them out and buy out their stakes? They've looked over the years at doing some kind of buyout of the other siblings. Most recently, I'm told that was in 2020, but it's pretty expensive. The value of the Murdoch business empire is around $6 billion for the family. So this wouldn't be cheap and you'd probably have to raise a lot of money. And that's been difficult.

Didn't Rupert see this moment possibly coming? I mean, he put this framework that all four kids would have an equal vote into an irrevocable trust. Like, did he not anticipate that this might create some infighting or that he might want to have only one of them have all the power? This is really puzzling to people around the companies because it looks like a recipe for a big problem, but I guess, you know, parents might not be able to imagine that their kids would be unable to agree on how to run a family business.

It seems like, well, we all love each other and we're all related. That won't be a problem. And then as the time went on, as years went on, it just became clearer and clearer, actually this is going to be a huge problem, particularly in the last maybe five or six years. And how big of an impact do you think the result

of this trial will have on the Murdoch media empire itself? Well, I think if Lachlan prevails and Rupert is successful in giving him control, I do think that when Rupert Murdoch dies, there could be more swift decision making and clarity over strategy one way or another, because one person would be in control. It would be much more like the kind of authority that Rupert himself has had all these years. So that's probably the biggest implication. There's a lot of strategic questions that we'll be facing these companies right now

on the television and Fox side. So that would all fall to Loughlin. And I think if this trial plays out where Rupert's successful, you'll see Loughlin Murdoch start to put his imprint on the empire in a much more definitive way. The trial is closed to the public, although several news organizations have been trying to get it opened up.

Meanwhile, Amol and our colleagues will be talking to their sources to try and figure out what happens. So what are you going to be watching for as this trial plays out? I think we're going to be watching for whether Rupert Murdoch's wishes are fulfilled here. This is towards the latter stages of his life. He's 93. He's decided to get his affairs in order in this particular way.

And will that happen? And however this case plays out, we're gonna find out when Rupert Murdoch leaves the stage, who's gonna be in charge. That's all for today, Tuesday, September 17th. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this episode by Jessica Tunkel, Alex Frangos, Catherine Sayre, and Keach Hagee. Thanks for listening.

See you tomorrow.