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When Lachlan Murdoch turned his back on News Corporation in July 2005, he faced the perennial problem that confronts heirs apparent when they step out of their father’s shadow.
Australia has seen precious few success stories in its wealthy dynasties. And what seems most perilous is the third generation, which struggles to hold on to fortunes, let alone build on them.
Some do it particularly tough.
Consider this: just how hard is it to be Rupert Murdoch’s son, to live in the shadow of a man who has built the most powerful media organisation in the world?
Making it onto the BRW Rich 200 in his own right has not come easily.
He wasn’t poor when he walked away from his position as global number three for News. He picked up $US13 million in salary, bonus and retirement payouts. At the time, Lachlan and his wife Sarah were remodelling a five-storey warehouse home in Soho, New York, they bought for $US5.25 million in 2003. They had a $7 million yacht, the 25-metre Ipixuna, and they promptly shelled out $7.5 million for a beachfront home at Bronte in Sydney (perhaps his best investment as it now has a $12.5 million price tag).
But these are merely trappings of wealth. What Lachlan needed was investment capital.
That came in the deal that Rupert Murdoch made with his adult children – Prudence, Lachlan, Elisabeth and James – to change the rules for the family inheritance that had been hammered out in his divorce from his second wife Anna, to include his two young daughters, Grace and Chloe.
As part of this, in January 2007, the Murdoch Family Trust distributed 4.36 million News Corp A shares to each of the six children. The stock was at $US24.45, which meant each parcel was worth $US106.7 million ($137.3 million).
There were more distributions, this time in cash, worth $88 million for each Murdoch, over the next year. In all, some $1.36 billion was shared out among the family in cash and shares. Lachlan’s share, like the others, was worth an estimated $220 million or so.
It all looked so easy on paper. But News Corp shares are the great blessing and curse of the family fortune. Lachlan, like most of his siblings, was loath to sell the stock he had been given. They fell and they kept on falling, right down to touch $34 million in March 2009.
At that stage, sticking by the family stock had cost Lachlan $100 million.
Lachlan had kept his powder dry, for the most part, as he sat out his two-year non-compete agreement with News. He made tiny plays into a string of failing stocks – 10 per cent of DVD rental group Quikflix before swapping it for stock in the ill-fated Destra Corporation and 13 per cent of Tasmanian fishery float Western Kingfish, and more successfully, a $4 million investment in toy group Funtastic.
He also bought part of United States-based online advertising company Spot Runner and a talent management firm in India and is understood to hold small stakes in several Australian media companies.
In January 2008, he set up his biggest deal, a $2.8 billion bid to privatise Consolidated Media Holdings with his friend James Packer.
In hindsight it was the ideal training for him. The deepening global recession meant that no matter how attractive it seemed on its history, within a year the stock would be worth $1 billion less than he was ready to pay for it. This was a good deal to fail in.
But to his credit, Lachlan set up the deal, won over San Francisco private equity firm SPO Partners to provide most of the $1 billion in equity he needed. Then when they walked away at the 11th hour, he hustled to New York to win support from Providence Equity Partners.
It was James Packer who scuttled the deal but it gave Lachlan a close-up view of what it takes to get a big deal up.
He had learned some hard lessons and now he began to notch up some successes.
During the tense negotiations for the Consolidated Media deal he found time to pick up a stake in the $US67 million consortium that formed the Rajasthan Royals in the new Indian Premier League. Two years later they had doubled their money as the franchise exploded.
In April 2009, Lachlan took an 8.9 per cent stake in Prime Media Group for $15.6 million. He’s currently 56 per cent up on the deal.
Eight months later he bought half of the struggling DMG Radio group in what was billed as a $220 million deal. That included $60 million that the Daily Mail Group stripped out of the company with debt and $30 million in preference share debt.
The equity was $133 million, with Lachlan’s half share $67 million. He raised some debt and to fund the rest of it he sold the News Corp A shares he had been given nearly three years before. He raised $60.7 million from them, which was up from the low in March 2009 but still less than half what they were when the family trust made the distribution.
Lachlan pumped $38.5 million capital into his Illyria Investments company, which left him with enough to buy a new home in Bellevue Hill for $23 million.
It was his DMG investment that raised eyebrows. The group had been loss making but in the year to last September it reported strong cash flow growth to $12.2 million.
That success made the next step easier, when he and James Packer joined forces once again for a foray on the Ten Network. Last November, Lachlan bought a $128.2 million stake in Ten from James and, significantly, mortgaged his Bellevue Hill house in the same week.
This is real money on the line for him. The bobbing share price this year has swung his position from $7 million up in January, to $25 million down in mid-March as the fight with Kerry Stokes flared after Lachlan poached Seven’s James Warburton to run Ten. Since then the stock has recovered to where it was when Lachlan bought in.
He has some hard yards ahead of him still at Ten but the impression he gives is that he is focused once more on the media business that he has spent his life immersed in.
Lachlan is not yet 40, but he has years of experience running Australia’s largest newspaper group and the Fox television station group in the US. He’s superbly connected both in Australia and around the world.
Perhaps most important of all, he has served the hardest of apprenticeships – experiencing first hand the pains of a big corporate crash with One.Tel, the ferocious corporate culture of News Corp’s US operations and the hard lessons that Consolidated Media gave him on how to put a big corporate deal together.
He has also run the slide rule over media businesses around the world looking for acquisitions. He has had some sizeable successes as a result of this search but often it’s tough days that teach leaders most. The magnitude of the deals he is putting together have continued to grow with his confidence.
The signals from New York are that Lachlan’s father wants to buy his Ten stake and welcome him back into the News Corp fold but he shows no sign of giving up his hard-fought independence.
Perhaps this is Lachlan Murdoch’s time.