July 17 (Bloomberg) -- When Twenty-First Century Fox Inc. President Chase Carey approached his longtime friend Time Warner Inc. Chief Executive Officer Jeff Bewkes in New York on June 9 about a $75 billion merger of the two media companies, Bewkes asked him a question. Carey’s contract would only run for another 18 months. Who would manage the merged company?
It’s a question likely to dominate the conversation in the coming weeks as Rupert Murdoch, 83, forges ahead with his plans to acquire Time Warner despite an outright rejection from Bewkes and the entertainment giant’s board.
At stake are the futures of three key Murdoch executives: Carey, Murdoch’s longtime deputy who helped shape the deal and who has been running the day-to-day operation; James Murdoch, who escaped the U.K. hacking scandal and helped hatch the plan to acquire Time Warner; and Lachlan Murdoch, who, after a long estrangement from the family, rejoined the fold this year.
Despite the rising clout of both Murdoch sons, a merger would “rest on the shoulders of Chase Carey,” said Claire Enders, who runs research firm Enders Analysis.
Citing a cultural gulf between the two companies, she said “the Murdochs would never be easily welcomed at Time Warner because of the political enmities built up over decades between Fox News and CNN.” Carey, who has won respect in the industry and, most importantly, isn’t named Murdoch, would need to bridge the two cultures.
“He would have to make it work,” Enders said.
Nathaniel Brown, a Fox spokesman, declined to comment.
Carey, 60, has been Murdoch’s No. 2 executive ever since he rejoined the company in 2009, and has long been seen as the de facto CEO of the New York-based giant. He has been a steady steward, evincing a calm demeanor that has been an effective counterweight to Murdoch’s more swashbuckling style. When Murdoch faced his deepest crisis in 2011 after it emerged that some his journalists had hacked the phone of a murdered school girl, the company was considering Carey as a possible successor, people familiar with the matter said at the time.
James and his sibling Lachlan were recently elevated to new positions. James, 41, is now co-chief operating officer reporting to Carey, and Lachlan, 42, is non-executive co-chairman. Carey is a regent of sorts, running the empire before James or Lachlan are ready to take control.
In formulating the plan to acquire Time Warner, also based in New York, Murdoch relied on analysis from Carey, James and Chief Financial Officer John Nallen, according to people familiar with the matter. Carey, known as a tough negotiator, studied how adding Turner and HBO would help Fox gain leverage when negotiating with the pay-TV companies such as Comcast Corp. and DirecTV. James, who had run TV businesses in the U.K. and Europe, worked with Carey on the analysis. For his part, Nallen determined how much money a combined company would save, at least $1 billion.
Two weeks after Carey first approached Bewkes about merging the two companies, Murdoch sent a formal letter to Bewkes outlining details of Fox’s proposal, which indicated that he would take the “best athlete” approach in determining who would run the company and which Time Warner executives would remain in top positions.
Murdoch is making a run at Time Warner after presiding over a family rapprochement of sorts. Lachlan, who resigned from News Corp. in 2005 after disagreeing with his father, rejoined the company in March. He now has a say on strategy and a chance to prove his mettle after struggling to make his way in Australia, where he ran a money-losing TV broadcaster and had to bring in a News Corp. executive to help turn it around.
James sees himself as the loyal son who stayed with the company since joining about two decades ago, said the people, who asked not to be identified discussing internal matters. During the U.K. hacking scandal, he expressed concern he was being wrongly singled out for blame. While initially a focus of official inquiries, U.K. regulators cleared him in the scandal, concluding he hadn’t “deliberately engaged in any wrongdoing.”
Since then James has boosted his clout at the company, making his role in the merger strategy a natural fit, the people said. In addition, his resume adds credibility to his presence in merger talks, having run British Sky Broadcasting Group Plc as its CEO from 2003 to 2007, these people said.
Lachlan has less of an operational role for the time being. Often seen as a technocrat, James is the opposite of Lachlan, who is more laid-back and takes long walks on the beach and proudly displays his tribal tattoos, the people said.
While Murdoch will likely retain the CEO title of a merged company, Carey will continue running the show, said Ajay Bhalla, a professor of global innovation at the Cass Business School in London, who follows family businesses like the Murdoch’s.
“James is being positioned in line with the shift in strategy,” Bhalla said. The Murdoch empire has “shifted from being news dependent to more TV and content generators.”
Still the Murdochs would have to win over Time Warner executives if a deal were to happen, according to Enders.
James Murdoch isn’t easy to get along with, she said, and Lachlan has yet to prove his business credentials.
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