The son sets on Rupe’s family plan

Lachlan's unscheduled exit leaves James all alone

Lachlan Murdoch, Rupert’s oldest son and News Corp.’s deputy chief operating officer, is the latest heir apparent to be knocked from the executive dais of the Aussie-founded media conglom.

His abrupt departure, five years after the exit of sister Elisabeth, leaves brother James alone in the family business to carry the Murdoch torch when chairman-CEO Rupert, 74, decides to step down — or be carried out.

Move leaves Peter Chernin, News Corp.’s highly regarded prexy-chief operating officer, in a stronger position than ever at the giant media conglom in a time of change, and a few surprises, over the past year.

News Corp. recently transferred its incorporation from Australia to the U.S., a time-consuming, complex and controversial process. The shift created an opening for Liberty Media’s John Malone to acquire a big chunk of News Corp.’s voting stock, leaving the company suddenly vulnerable to a takeover.

The situation with Malone may be resolved amicably, but it’s still to be resolved. Perhaps more significantly, the issue has given Wall Street and industry players new scenarios to chew on as they ponder the future of the giant conglom and its once unflappable leader.

Blocked by family line

For years, Wall Streeters have felt Chernin’s pain — that of an able top exec barred from chief status by Murdoch’s unabashedly dynastic succession planning.

Chernin’s hefty pay packages eased the sting; they had to. Investors regard Chernin as a safety net between Murdoch and a nepotistic abyss. They punished News Corp. stock when Chernin took longer than expected to reup his latest five-year contract and when he was said to be flirting with Walt Disney. (Though Chernin — smart guy, even smarter in hindsight — is said to have never approved a Disney interview)

Now it seems certain Chernin will have years at the helm as the younger, greener James, currently head of U.K. satcaster BSkyB, gets up to speed on News Corp.’s diverse businesses. Should James implode along the way, Chernin will be there.

“It does lessen investor concern surrounding nepotism and issues of succession,” said analyst Richard Greenfield of Fulcrum Global Partners.

Murdoch has consistently said he wants family to take over the store. For investors, that’s been the sore spot in an otherwise stellar, often ruthless business career. Murdoch grew a small Australian newspaper group into a behemoth whose holdings range from the Fox broadcast, cable and studio assets to newspapers on three continents, book publishing and satellite television that sweeps the globe.

Last month, the conglom launched an interactive unit and ponied up more than half a billion dollars to buy Netco Intermix Media. Some reports credit James, said to be the tech-minded sibling, for input into the deal — one reflecting a whole new strategic thrust for the conglom. But such speculation is typical of the decade-old parlor game: handicapping the Murdoch kids. Who’s smartest, who’s savviest, who’s in pole position?

A New Zealand newspaper noted over the weekend that Murdoch had followed the traditional aristocratic path of creating an “heir and a spare.”

Lachlan looked good

For a time, Lachlan seemed to have the upper hand in the succession race: He’s a year older than James, and he was working alongside his father on the prominent U.S. operations. He’d spent years learning the family business, first running the News Corp.-owned newspaper group in Australia, then moving to New York in 2000 to take over the New York Post.

As publisher, he’s credited with boosting circulation, which grew 40% under his watch, partly due to steep discounting of subscriptions and cover price.

As chairman of the Fox Television Network, he executed the company’s duopoly strategy in the nine markets where the company owns and operates two stations.

Lachlan’s biggest stumble came when he was running the Australian business and lost News Corp. $400 million in a disastrous telecom venture called OneTel. His father seemed to move on, but some said it was then that the elder Murdoch started to push James forward.

Rupert Murdoch had also indicated at one time that he’d take his sons’ advice on when to step down. More recently, he put his retirement plans on hold indefinitely.

Lachlan earned mixed reviews on Wall Street. Some found him solid and smart enough, but others fretted that he sounded nervous and awkward on conference calls.

While News Corp. shares dipped slightly Friday, investors said Lachlan’s departure, scheduled for Aug. 31, would have minimal impact on the company’s operations.

“I look forward to returning home to Australia with my wife, Sarah, and son, Kalan, in the very near future,” he said, in a statement. “I would like especially to thank my father for all he has taught me in business and in life. It is now time for me to apply those lessons to the next phase of my career,” Lachlan said in a statement.

He will remain a director of News Corp. and will serve as an adviser to the company.

“I am particularly saddened at my son’s decision and thank him for his terrific contribution to the company, and also his agreement to stay on the board and advise us in a number of areas,” Rupert Murdoch said.

Why did Lachlan leave?

Speculation swirled into the weekend: Could Lachlan emerge in the center of a burgeoning scandal as yet unknown? Did Lachlan chose to exit the pressure cooker in frustration with a micromanaging father? Was there a rift with Rupert, or with Chernin? Murdoch pere is said to have complained that Lachlan took too much vacation time. Do Lachlan and his wife, model Sarah O’Hare, really prefer to raise their family in Australia?

“We don’t know. Did Rupert think James was the better guy, and tell him so?” said analyst Dennis McAlpine. “Elisabeth was supposed to be the heir apparent at one time, and she left. She was supposed to be the brightest of the three,” he added.

Elisabeth Murdoch, 37, quit as managing director of BSkyB in 2001 and currently runs Shine, a television production company in London.

Rupert Murdoch has six children from three marriages. The oldest, Prudence, 46, has no role in the company. He has two toddlers with his current wife, Wendi Deng.

Murdoch faced the loudest charges of nepotism when he appointed James to chief executive of BSkyB in 2003. Shareholders charged the search for a chief exec should have been wider. James had been chief executive of Asian Star TV.

James is said to have won grudging respect in U.K. media circles. Some pundits don’t expect James to stay more than 18 months at BSkyB now that he’s got so much else to learn at News Corp. as solo heir.

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