Murdoch’s banquet with Trump hints at Lachlan’s precarious crown

Despite Rupert Murdoch’s apparent disdain for the establishment, his presence at US President Donald Trump’s state banquet this week was hardly his first dinner at the British monarch’s palace.

But it may not be a coincidence that his first public appearance in Trump’s orbit since a legal brawl erupted between them comes barely a week after securing control of his empire for son Lachlan.

Corporate documents released on Monday revealed for the first time the price Rupert and Lachlan paid to secure control of the business via the new web of family trusts they control. The youngest siblings, Chloe and Grace, remain passengers.

It is not just about the billions of dollars they had to pay to the rebels, Elisabeth, Prudence and James. The problem is how Lachlan was forced to fund their exit with share sales and financing that weakens his grip on both Fox and News Corp.

It might have provided fresh urgency for Rupert to mend fences with Trump over his $US10 billion ($15.1 billion) lawsuit against News Corp’s Wall Street Journal over its reporting of his relationship with Jeffrey Epstein.

While the lawsuit is flimsy, Rupert needed only to look down the banquet table at Apple boss Tim Cook to know that Trump can create real havoc for any business that operates in the US. And keep in mind that Trump is the main asset of the family’s most profitable business: Fox News.

To understand Lachlan’s precarious situation, it serves to understand why this deal was the least preferred option for both Rupert and his favoured son.

The low-ball offer in 2019 to buy out the siblings from the family trust – at a significant discount to the market value of their shares in News Corp and Fox Corp – was probably an indication of what Lachlan could afford without creating fresh dangers to his control.

Rupert needed only to look down the banquet table at Apple boss Tim Cook to know that Trump can create real havoc for any business that operates in the US.

When that failed, the brutal legal putsch last year – which ruptured family relations like never before – was a high-stakes gamble to achieve the same control without offering any money to Elisabeth, Prudence and James.

Rupert and Lachlan failed with their argument that changing the trust in a way that handed permanent control to Lachlan was in everyone’s best interests.

Now let’s look more closely at the deal, which paid out his siblings a combined sum of $US3.3 billion, which we now understand more fully.

This money was not conjured out of thin air.

First, there was the sale of voting stock that has ensured the Murdoch family retains control of both businesses despite a much smaller economic interest in News Corp and Fox. The family owned barely 20 per cent of each business but controlled about 44 per cent of the voting stock in each.

About $US1.35 billion worth of Fox and News voting shares were sold, weakening the Murdoch trust’s voting stake to 33.2 per cent of News and 36.2 per cent of Fox.

This alone creates an opportunity for other investors who have railed at the dual-share structure that ensures the Murdoch family’s control. Barely a decade ago, rebel shareholders fell just short with a resolution to remove it.

Another rebellion might not be on the cards just now, with both stocks near multi-year highs, but if Lachlan falters, his fellow investors could certainly succeed with a bid to put their own directors on the board. They could also vote out Lachlan and Rupert’s preferred nominees, such as Fox board member and former prime minister Tony Abbott.

But the real powder keg is the $US1 billion loan from J.P.Morgan to help fund the deal.

This is where things get interesting.

We now know, thanks to filings from Fox and News Corp, that this loan is secured against the Murdoch trusts’ shares in each business. A lot of them.

According to the documents, almost half of the trust’s News Corp shares are secured by loans, and more than 40 per cent of its Fox voting shares.

The Murdochs have wisely deleted references to the price at which the trust would face a call on the loan – if News or Fox shares were to plunge – and could lead to the shares being sold on the open market.

Murdoch insiders don’t like to call it a margin loan, they prefer “collateralised loan”, but the details outline the danger clearly.

This money was not conjured out of thin air.

If these “certain events” occur, J.P.Morgan would require the Murdoch trusts to “pre-pay the loans or pledge additional collateral, and may also have the right to foreclose on, or otherwise dispose of, the Class B [voting] shares held as collateral”.

A forced sale could suddenly reduce the Murdochs’ stake in both businesses to about 20 per cent. This is a serious threat unless Lachlan and Rupert can ensure they have enough cash to protect their stake from this scenario.

Lachlan will need to shore up his defences. This could include orchestrating share buybacks at News Corp and Fox that use company cash to acquire the voting share of other investors. This has the effect of lifting the proportion of voting stock owned by the Murdoch trusts.

But the loan remains a big risk if the sharemarket’s irrational exuberance, or Trump, sends either News or Fox shares plummeting.

The only fix for this is to raise more cash and pay down the loan. It could mean that Lachlan has to consider the sale of assets outside the family empire – such as his Nova radio business.

It will be a task left to his consiglieri Siobhan McKenna, who has masterminded the plans Lachlan pursued to wrestle control of the business from his siblings. She would understand the new danger.

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