Analysis: Carey pressured from both sides of Fox Time Warner deal to stay in job

LOS ANGELES/NEW YORK Thu Jul 24, 2014 11:03am EDT

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LOS ANGELES/NEW YORK (Reuters) - Chase Carey, Twenty-First Century Fox's president and chief operating officer, may be feeling pressure to stay in his job for several more years both from his boss, Rupert Murdoch, and from the company Murdoch is trying to buy, Time Warner Inc.

As Murdoch mulls his next step following Time Warner’s rejection of his $80 billion offer, some Time Warner investors say they are concerned about who might succeed the 83-year-old chairman and chief executive. In particular, they're not sure whether Murdoch's sons, James, 41, and Lachlan, 42, are ready to manage the integration challenge. That's where Carey comes in.

The 60-year-old New Yorker, who's been working for Murdoch since 1988 and earned a reputation for a no-nonsense leadership style, signed a two-year contract with Fox in June that gives him the option to opt out after 18 months. That's raised concern that two years won't be long enough given the complexity of the deal and the likelihood that it may not close until the end of 2015, if not later.

"There is a big push for Carey to stick around to handle the transition if not beyond," said one person familiar with Fox's thinking. "There's no way that after working for 30 years for Rupert and he gets his crowning deal that Carey would bail on him."

The succession issue is important to Time Warner shareholders not only because of concerns about the experience of Murdoch’s sons but also because the way the bid was structured, Time Warner shareholders would have no voting shares: Murdoch controls Fox through a special class of voting stock that is not part of the deal. The deal would be less risky for Time Warner shareholders if Carey were still in the job, said one person familiar with Time Warner.

Fox spokesman Nathaniel Brown declined to comment. Time Warner spokesman Keith Cocozza also declined to comment. Carey didn't respond to a request for comment.

"The reasons people like Carey is he is decisive, he doesn't use words to create obfuscation, he is very direct and extraordinarily candid for a senior executive," said Larry Haverty, a portfolio manager at Gabelli with stakes in Fox and Time Warner.

"If I had to pick between James and Chase I would pick Chase," Haverty said, if the merger happens. On July 16 Time Warner said it rebuffed an $80 billion bid from Fox, including about $85 per share in cash and non-voting stock.

The Murdoch family, including James, is so behind Carey that during the contract negotiations Carey was asked to stay three years, according to two people familiar with the talks. One of those sources said that Carey and James have become close and that James is among his strongest supporters.

MEDIA COLOSSUS

In March, Murdoch elevated James to co-chief operating officer with Carey. Lachlan returned to the fold after nearly ten years to become non-executive co-chairman of both Fox and News Corp, the publishing assets that were cleaved off from the entertainment division in a corporate split last year.

Investors in both companies view Carey as well equipped to handle the job of combining and managing an entertainment and news colossus that would alter the media landscape. A merger would bring under single management the major movie studios Warner Bros and Twentieth Century Fox, a vast array of broadcast and cable networks that includes Turner Broadcasting System and Fox News, and HBO, one of the most successful pay-TV channels.

"You are dealing with the necessity to manage globally an enormously (big) empire. I think Chase has done that with a company half the size where James has proved he has led a single business," Haverty said, noting that James did an "outstanding job" as CEO of British pay-TV provider BSkyB, which is 39-percent owned by Fox.

"I think James is eventually going to have enough background to move into Chase's shoes and my guess is he will do very well with that," said Haverty.

LOYAL LIEUTENANT

Time Warner's board is concerned that the Fox deal will leave its shareholders with no say in the future company, sources familiar with Time Warner told Reuters last week. Time Warner has one class of stock.

A merger could be a good leverage point to reshape the leadership.

"I do think the big deal here ... is the management and the voting control," said Matthew Benkendorf, portfolio manager at Vontobel Asset Management, which owns about 5.5 million non-voting Fox shares.

"This is a good chance for everyone to start thinking about this generational change going on."

Carey has been one of Murdoch's most loyal lieutenants. During the height of the phone hacking scandal three years ago at Murdoch's British newspapers, the media mogul once went as far as acknowledging that Carey would replace him as CEO if he suddenly "went under a bus."

Carey joined what was then News Corp in 1988 serving in a variety of roles including a consulting stint and chief executive of DirecTV when Murdoch controlled the satellite operator. Carey stayed with DirecTV after Murdoch sold his stake to Liberty Media's John Malone but not for long: he quickly went back work for Murdoch after Peter Chernin, president and COO exited News Corp in 2009.

"You've got Chase Carey... he's very strong across the board," said Jason Subotky, partner and portfolio manager at Yacktman Asset Management one of Fox's largest common shareholders. "He's very disciplined, he's a good operator and a good negotiator. He has experience on both sides of the business, both in content and distribution."

(Additional reporting by Ross Kerber in Boston)

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