It used to be said that Rupert Murdoch’s media empire would not survive intact beyond the founder’s lifetime. Now, it seems, it may not get that far.
The stunning news is that Murdoch’s 21st Century Fox held talks with Disney about a sale of the bulk of its business – the movie studio, TV production and the international operations including the 39% stake in Sky in the UK. All that would remain would be Fox’s broadcast network and its news and sports assets in the US – a substantial operation in its own right, but not the stuff of empires.
The talks with Disney are said to have failed over price, but that factor can always change. If Murdoch has truly concluded that Fox can’t compete against today’s bigger media battalions, other bidders will circle. Fox’s shares rose 10% on Monday, expecting a contest. Murdoch has, in effect, advertised that he’s a seller.
This turn of events is extraordinary. We had assumed Murdoch’s attempt to seize 100% of Sky was a prelude to one last, and bigger, deal – a final expansionary adventure before control was fully passed to sons Lachlan and James. Selling is also entirely out of character: Murdoch rarely does tactical retreats.
This one, if it happens, would be forced by events. Plan A for Murdoch was a takeover of Time Warner but the attempt in 2014 was a flop. The initial $80bn (£60bn) bid was too low. Warner also made hay with the argument that Fox’s non-voting shares were a second-class currency that gave the Murdoch family too much control; investors seemed to agree.
The Warner episode was a brutal demonstration of Fox’s limited financial muscle in a world where US media companies are combining and getting bigger. Disney, for example, is worth $170bn, against Fox’s $50bn. Meanwhile, Fox’s ability to conduct share-based deals – as opposed to the £11.7bn cash offer for Sky – has continued to wither. Its share price is lower than it was at the time of the Warner failure.
That reflects the market’s view that media tides are running against Fox. Netflix and Amazon are changing viewing habits with their direct-to-consumer models. Disney will see an opportunity to slam Fox’s film and TV assets into its own ESPN operation to take on Netflix with a new streaming service. But the same strategy wouldn’t work in reverse: Fox is too small to bulk up now.
“21st Century Fox is embracing industry transformation head-on,” declared Rupert and Lachlan, the joint chairmen in the last annual report. It sounded like fighting talk – it now reads more like wishful thinking.
If the Murdoch empire is really to be shrunk, there is a long list of follow-on questions. What happens to the Sky bid? How would the rump Fox be run? And how would the Murdoch succession be affected?
The answers are all as clear as mud. Any new owner of the 39% of Sky is formally obliged to continue with the bid, but there’s scope to let the clock run down. As for Fox, it would be hard to re-combine it with the UK newspaper business, which was detached in 2013 after the phone-hacking scandal: Murdoch might be willing to gather all the news assets under one roof, but would struggle to convince US shareholders.
And succession, who knows? If you offered James any slice of the current stable of assets to run, Fox News would probably be the very last he’d choose. The Murdoch family drama rolls on.
SSE job cuts loom as it plans to offload retail
Here’s one corporate solution to the looming price cap on energy bills: hand your troubled retail supply business to your shareholders via a demerger.
SSE’s plan to shuffle off its household energy supply business comes with a novel twist. On the way to a separate stock market listing, the demerged operation will collect npower’s smaller and poorer supply business. In combination, the scope for cost savings should be greater. So, even in the new world of price caps, it might be possible to squeeze out a few dividends for shareholders from a total customer base of 13 million. Those investors who are still sceptical at least get the chance to sell their stock.
That, at least, is one happy-ish reading. An alternative view is that the mash-up is a case of two weak businesses leaning on each other for support.
The npower operation is loss-making and its German owners have always seemed more interested in their power generation assets in the UK, which are not part of the deal. Household supply is more important for SSE but is still expected to contribute only 15% of group profits this year, so this is hardly a case of demerging the family silver. Generation, renewables and the networks business are SSE’s bigger assets.
The need for SSE to do something, however, is obvious: among big suppliers, it has the biggest proportion of customers on standard variable tariffs, the ones that will be capped. The other imperative is to move quickly in case other members of the big six get the same idea about combining. Competition regulators might tolerate a big five, especially if SSE and npower can produce a plausible case that they will compete harder as a result, but a four would be tricky.
In the meantime, SSE says it will be “mindful” of the “concerns of employees”. Very sweet, but the proposed deal only makes financial sense if you’re intending to cut jobs. Why not just say so?