Better Off Alone? Why the Murdochs Called Off a Fox-News Corp. Merger

What alternative deals could Fox Corp. and News Corp. explore now that media mogul Rupert Murdoch has pulled the plug on his proposal to merge the two and reunite his media empire, which had split in 2013 to focus on different businesses and strategic priorities? Wall Street experts have started debating this question after the companies unveiled the decision on Jan. 24 following objections raised by various investors and at least one member of the Murdoch family.

“In withdrawing the proposal, Mr. Murdoch indicated that he and Lachlan K. Murdoch have determined that a combination is not optimal for shareholders of News Corp. and Fox at this time,” read News Corp.’s board statement. Fox, where Rupert Murdoch serves as chair and son Lachlan as executive chair and CEO, issued a similar comment.

The elder Murdoch had initiated the merger discussions in October, asking the boards of both firms to consider a combination, leading Fox and News Corp. to forming special committees of their boards. Through his family trust, Murdoch has effective control over the companies, but a merger would require approval from a majority of non-Murdoch affiliated shareholders. Major shareholders, such as T. Rowe Price and Irenic Capital Management, expressed concerns about the proposed transaction and its potential valuation. And, sources tell The Hollywood Reporter, so did James Murdoch in letters to both companies’ boards.

Cowen analyst Doug Creutz was among the Fox observers on Wall Street lauding the outcome, writing in a report that it “removes an overhang on Fox shares” and adding: “This is the best outcome for Fox shareholders (though it could always be revisited in the future).” The Wall Street expert, who has a “market perform” rating and $36 price target on Fox’s stock, also opined: “We believe the proposal was withdrawn due to opposition from large investors such as T. Rowe Price, which is the second-largest shareholder of News Corp. (with an 18 percent position) behind the Murdoch family. T. Rowe indicated they believed that a combination would further undervalue News Corp. shares.”

News Corp., home of The Wall Street Journal, The New York Post, Dow Jones, Australian pay TV giant Foxtel and digital assets, now is setting its sights on the sale of a business that some investors have been clamoring for. The firm said Wednesday that it is looking at selling Move, which operates real estate listings site Realtor.com, to CoStar Group, which provides information and analytics to the real estate sector. News Corp. owns an 80 percent stake in Move, while Australia’s REA Group, of which News Corp. owns a majority, holds the other 20 percent.

The deal “would annul the potential synergies with Fox Corp.,” Wolfe Research analyst Peter Supino argued in a Wednesday report. He also commented on the “risqué relationship” between the two Murdoch companies. “If one were to rewind and find cracks in the prior relationship, one would quickly find out that Fox Corp. spent years indemnifying News Corp.’s legal expenses related to the U.K. hacking scandal,” Supino wrote. “But in true ironic fashion, Fox now finds itself in court defending against defamation allegations from Dominion Voting Systems for election fraud linked to the Trump-Biden run-off. We believe this was a meaningful obstacle to getting the extended family’s approval of a Fox/News Corp. relationship.”

But its unclear what the lack of a marriage will mean for Fox Corp. — whose assets include the Fox broadcast network, Fox News, Fox Sports and more — and which has on Wall Street been described as both an attractive takeover target and as potential suitor of other businesses. (News Corp., whose traditional media businesses, such as book publisher HarperCollins and its newspapers, were seen by some as a drag on Fox.) As a potential buyer, the sports betting arena is often considered a likely area where Fox could look for growth via deals.

The Street is also chiming in on Fox’s deal appetite. “Back to the dating scene for Fox, or better off alone?” asked Supino. “The rationale for a Fox/News Corp. merger was that the combined balance sheets would provide enough scale to pursue other opportunistic deals, with sports betting called out as an example of assets that could leverage both companies’ strength in news and sports.”

The Wolfe analyst maintained his “underperform” rating on Fox shares with a $28 price target. “While Fox’s news and sports driven portfolio is better-suited than most TV incumbents to grind through intensifying cyclical and secular headwinds, it’s nonetheless highly levered to the pay TV business and grappling with a negative macro environment,” Supino explained his rating.

Despite the broader deal focus in the media and entertainment industry, other experts have also suggested that Fox could succeed with its more narrowly defined portfolio of sports and news assets rather than adding to that mix.

“Fox decided in 2019 to go against the grain and double down on the linear bundle. This is why it sold off much of its asset base to Disney and emphasized news and sports as drivers of pricing for cable affiliate and broadcast retransmission fees,” Macquarie analyst Tim Nollen, who has a “neutral” rating and $30 price target on the stock, highlighted in November.

MoffettNathanson analysts Robert Fishman and Michael Nathanson, who have an “outperform” rating with a $46 stock price target on Fox, argued late last year that its shares have upside. “As a standalone company, Fox Corp. is just starting to see its current strategy pay off with stronger fiscal first-quarter results and the rest of fiscal year 2023 driven by the next round of affiliate fee step-ups, Super Bowl, political advertising, Tubi, World Cup and the biggest positive to the bottom line – Thursday Night Football losses disappearing,” Fishman and Nathanson touted.

Alex Weprin contributed reporting.