It's a Family Affair

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In a boardroom struggle that is as much about legacy concerns as about control, media titans Rupert Murdoch and John Malone are sparring over the prized assets of News Corp., which include the Fox TV group, publisher HarperCollins, filmmaker 20th Century Fox and satellite-TV firm DirecTV. Malone, 63, wants to resuscitate his image as a brilliant dealmaker and operator. Murdoch, 73, who has offices secured by fingerprint ID technology and keeps a tight rein on the company he built, is driven to pass on the business to his children.

Shareholders might wonder if they are anything more than an afterthought. News' stock has been rising — but not fast enough for a company projected to grow earnings at twice the industry pace, says Merrill Lynch analyst Jessica Reif Cohen. She calls the stock grossly undervalued. News recently left Australia to incorporate in the U.S., where it will be added to the prestigious S&P 500 stock index next month. That's giving it a boost. But Murdoch's plan for his two thirtysomething sons to succeed him remains a drag on the stock. Adding weight to the anchor: since Malone, who runs Liberty Media, arranged to increase his stake in News to 17% from 9% two weeks ago, Murdoch, who owns 30% of voting shares, has built an elaborate defense to discourage anyone from trying to wrest away control.

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Murdoch lined up support last week from Saudi Prince Alwaleed bin Talal, who owns 3% of News' nonvoting shares and said he was willing to convert those shares into voting stock and buy even more. A second prong of defense emerged earlier, when Murdoch's board adopted a "poison pill" provision that would make it hugely expensive for Malone to add to his stake. Poison pills don't sit well with shareholder groups. "They generally are adopted by boards unilaterally just when shareholders least like to see them," says Ann Yerger, acting executive director at the Council of Institutional Investors.

Murdoch's oldest son Lachlan, 33, is considered the most likely heir to the top job. "He's bright and personable, but he's just a kid," says Porter Bibb, managing partner of investment firm Mediatech Capital. "If something happened to Rupert in the next year or two and the board handed the company to Lachlan, there would be a shareholder revolt." Lachlan currently serves as deputy chief operating officer at News, with responsibility for the Fox TV stations, HarperCollins and the New York Post. He has a bit of a renegade-playboy image with his tattooed forearm and his actress wife Sarah O'Hare, who is a former Revlon and Wonderbra model.

Murdoch's second son James, 31, is CEO of British Sky Broadcasting, News' satellite-TV business in Britain. Of Murdoch's two grown daughters, only Elisabeth, 36, has extensive business experience, and she is happy running her own British production company, says a News spokesman. Murdoch declined to comment for this story. But Wall Street insiders say that should anything happen to him in the near term, News' highly regarded president, Peter Chernin, would run the company. Eventually, though, the Murdoch boys would be in charge. "It's a known evil going in," analyst Richard Greenfield of Fulcrum Partners says of any family-controlled business. "If you don't like it, you shouldn't own the stock."