The secret loan to secure Rupert Murdoch’s succession

As birthday presents from fathers go, being granted sole control of a multibillion-dollar media empire must rank fairly high.

Such was the good fortune enjoyed by Lachlan Murdoch this week, whose ascension to the top of his father’s kingdom was confirmed as he celebrated his 54th birthday.

The coronation did not come easily, however. The deal followed months of acrimonious negotiations and a high-profile legal battle that threatened to tear the family apart.

Ultimately, however, in the Murdoch dynasty, money talks, and power has been consolidated with the eldest son through a secretive financing arrangement that will hand his siblings generous pay-offs in exchange for walking away.

Lachlan hailed the outcome as “great news for investors” and said it heralded a new period of stability for his companies. But with details of the restructuring still under wraps, the future of the Murdoch empire may yet be up for grabs.

Not long ago, the 94-year-old Rupert Murdoch was in the doldrums. In 2023, shareholders had decisively blocked his attempt to merge the two wings of his media empire – News Corp and Fox Corp – while this summer, Donald Trump, the US president, filed a $10bn (£7.8bn) defamation lawsuit over a Wall Street Journal report alleging that Trump sent the late paedophile Jeffrey Epstein a “bawdy” birthday card.

Most bruising to his succession planning, though, was a failed attempt to alter the family trust. Following a blockbuster trial in Nevada at the end of last year, the judge accused Rupert and Lachlan Murdoch of acting in “bad faith” and branded their plan a “carefully crafted charade”.

It was an uncharacteristic string of setbacks for Rupert, but the tycoon was not defeated.

In a succession battle worthy of the HBO drama the family helped inspire, months of intense negotiations between the warring family members ensued. It was an acrimonious process that saw the opposing factions resort to communicating through lawyers.

Critical to the conflict was politics.

Lachlan, the heir apparent who took over the day-to-day running of the Murdoch businesses in 2023, is closely aligned with his father, whereas James, Elisabeth and Prudence Murdoch are viewed as more liberal.

For Rupert, securing the Right-wing stance of his media assets was crucial. In an email released during the Nevada trial, he wrote: “Fox and our papers are the only faintly conservative voices against the monolithic liberal media. I believe maintaining this is vital to the future of the English-speaking world.”

The eventual solution was complicated. Through the previous family trust, Rupert held a 40pc voting stake in both News Corp and Fox. This will be replaced by a new trust controlled by Lachlan, but its stakes in the two companies have been diluted to 33pc and 36pc, respectively.

News Corp and Fox have mandated Morgan Stanley to sell shares worth about $1.4bn on behalf of the three children leaving the trust. Prudence, Elisabeth and James will receive $1.1bn each in return for their stakes.

“I am not surprised that the siblings went for the money,” says one former Murdoch executive. “There is always a cheque that will resolve these disputes.”

However, the exact details of the complex arrangement remain murky. It is not yet known who has bought up the shares in News Corp and Fox – described by analyst Claire Enders as an “attractive investment with some transparency” – though it is thought to include Australian institutional investors and pension funds.

Murdoch has raised further funding in the form of a $1bn loan. While this is believed to have been provided by JP Morgan, it is not clear which fund has been used or where the money originates.

This opacity raises the possibility of Middle Eastern involvement, especially given Murdoch’s previous ties with wealthy Arab individuals. Prince Alwaleed bin Talal, a Saudi Arabian billionaire, was a long-time investor who stood by the family when the News of the World phone hacking scandal erupted in 2011.

Any involvement by sovereign wealth funds would ring alarm bells in the wake of new laws banning the ownership of British newspapers by foreign states.

The laws, introduced this year in response to the failed takeover of The Telegraph by UAE-backed fund RedBird IMI, cap ownership by foreign states at 15pc. A holding of 5pc or more requires the investor to notify the Secretary of State, while any debt arrangement may be scrutinised if it is deemed to convey influence over the title.

Murdoch’s News UK has been a vocal opponent of the laws and lobbied vocally to raise the threshold of the ownership cap, which was initially proposed at 5pc.

In response to a government consultation earlier this year, it said a 15pc cap “would provide clarity for all stakeholders and avoid unduly jeopardising continued investment in the UK’s media and newspaper industry whilst appropriately protecting against foreign state influence”.

It is not thought that News UK has been required to notify ministers of any foreign state involvement. News Corp declined to comment on the source of the funding.

Whatever the source of the money, Murdoch’s supporters argue that the deal removes a major uncertainty that was hanging over his empire.

“It shows that our strategy will be consistent. It’s clear, and it’s very sustainable,” Lachlan said this week. “We can be very focused on returning capital to investors, driving our profitability and, really importantly, investing in our core brands and especially in our great journalism.”

Nevertheless, the mystery investment leaves some questions over the future direction of Murdoch’s empire unanswered.

The new trust guarantees Lachlan’s control until at least 2050. Many believe, however, that Murdoch’s death will be the real game-changer.

“The future of the empire is as it is until Mr Murdoch leaves this Earth,” says Enders. “I think it’s really unlikely that there’s going to be any change in the assets while he’s alive.”

Further down the line, more change could be afoot. Lachlan earlier this year launched a now-aborted takeover bid for Rightmove through REA, the Australian real estate group that has proved to be his savviest investment. The newly crowned mogul could look at further dealmaking to diversify the group away from its media assets.

More controversially, he may shun sentimentality and decide to sell off the group’s loss-making Australian newspapers. Enders describes Lachlan as “extremely pragmatic”.

Yet the succession process has diluted Lachlan’s grip on the empire. The future role played by Chloe and Grace, Rupert’s youngest children from his marriage to Wendi Deng, who are also beneficiaries of the new trust, is another unknown.

Meanwhile, the Murdochs have already faced opposition from investors. Aside from the shareholder revolt over the proposed merger between News Corp and Fox, activist Starboard Value has attempted to break the family’s grip by abolishing a dual-class share structure. It has also pushed for a spin-off of REA.

So while the deal appears to have secured the future of the Murdoch empire for the coming decades, an atmosphere of interregnum still reigns. The surprise decision by David Dinsmore, the former editor of The Sun and long-serving Murdoch lieutenant, to quit for a communications role in No 10 – a move accompanied by a bruising pay cut – has been viewed by many as a symptom of this uncertainty.

Rupert Murdoch’s ability to broker a deal with his feuding family is likely to be viewed as one of the final – and most crucial – victories for the media mogul. But the future of his empire remains far from guaranteed.

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