Billionaire babies: how James Packer and Lachlan Murdoch kept their eyes on the prize

by Paddy Manning | Nov 13, 2022 | Comment & Analysis, Latest Posts

Billionaire media scions Lachlan Murdoch and James Packer have a close friendship which has endured the ups and downs of mega-deals including Australia’s ‘Super League’ war, the collapse of One.Tel, the rise of Realestate.com.au and failure of Channel Ten – some of the best and worst moments of Lachlan’s career. This edited extract from Paddy Manning’s new biography of Lachlan Murdoch sheds new light on their tumultuous business history.

James Packer, born in Sydney, was four years older than London-born and New York-raised Lachlan Murdoch, but they shared the same birthday: September 8. They had not grown up together, but Lachlan and James went out of their way to cultivate a friendship when the young Murdoch moved to Australia in his early twenties, after graduating from Princeton University in 1994. They were seen dining together and relaxing at Packer’s luxurious weekender at Palm Beach, fifty kilometres north of Sydney. Super League strained their relationship, but by the end of 1996, as the costs piled up, the Murdochs and the Packers were both searching for a compromise, and it was the younger generation who did the groundwork.

James reached out to Lachlan, saying that Kerry had loaned him his 88-metre yacht, the Arctic P. Would Lachlan and a few mates like to join him for four nights’ cruising off Fiji? It was an offer too good to refuse. With his younger brother James and friend Joe Cross, Lachlan joined Packer and a few of Packer’s close buddies on two private jets bound for Nadi airport. The trip became exactly the kind of extended party you might expect of a bunch of twenty-somethings on a well-crewed yacht designed to cater to their every whim. “It’s basically a drinkathon, you know, it’s a dead-set 24/7 party,” recalls Cross:

“I remember the first night, we had this team Lachlan vs team James, and the competition was called The Snorkel. The rules were quite simple – you stand in your Speedos on the back deck of the yacht with a facemask and a snorkel on your head. Just like you would if you were actually going snorkelling . . . but this game is a little different. With this one, your buddy would stand on a chair behind you and pour cans of VB beer down the snorkel . . . you had to make sure you didn’t spill a drop . . . and one can of beer was just for starters! The winner of course was defined by how many and how fast! I forget who won but that wasn’t really the point. This is what you do when you’re twenty-four, twenty-five…We’re jet skiing, we’re on kayaks, we’re windsurfing, we’re jumping off the front of Arctic P and it’s twenty feet high, we had the time of our lives. We played a lot of backgammon and chess and all for money . . . not big stakes, but enough to make you focus . . .on the Arctic P you could press a button, kind of like a remote control for a garage door, and order a cheeseburger or a club sandwich at three in the morning. I guess that was because Kerry liked the idea of the kitchen running in shifts over a 24-hour cycle. Lachlan and I kept the 3 a.m. shift rather busy . . . it was good times, good laughs.”

Business was barely discussed, although everyone on board knew the high-stakes game being played out back in the real world. The guests kept their opinions to themselves – you could get yourself in trouble giving unsolicited advice to the sons of billionaires. “When you’re that close to the flame, you don’t want to get burned, so everyone knows when to keep their mouth shut,” Cross says. “If you speak out of line, you learn pretty quick that you don’t do that . . . it’s not your place, and fair enough, because most of the time the friends are operating on only half the story and don’t know the facts or the history.”

The trip served its purpose. James Packer, who remains good friends with Lachlan, whom he affectionately calls ‘L’, remembers the dynamic well. “It wasn’t up to us to make peace,” he says. “That was up to our fathers.” But he agrees the trip helped to make peace possible; after their time away together, he and Lachlan advised Kerry and Rupert that it was time to end the Super League war, saying it had been “going too long and it’s expensive, people have got their egos caught up in it.”

As it happened, love bloomed on board as well: Joe Cross’s girlfriend had been a late scratching, so he brought along his flatmate, Kathryn Hufschmid. When Kathryn met James Murdoch, the two fell for each other straightaway. Within a few years they were married – and they are still together more than twenty-five years later.

The smell around One.Tel

Looking back, One.Tel liquidator Steve Sherman does not believe that Lachlan and James were “profoundly misled” about the financial situation at One.Tel, arguing that directors cannot plead ignorance of the finances of a company whose board they sit on, and both men could have made further enquiries of management. “I disagree with Sherman,” says Packer, who received daily cash-flow reports from One.Tel management and repeatedly asked Jodee Rich and Brad Keeling whether the company was going to run out of money, only to be told over and over that it did not need more capital. Packer had been assured the cash balance would never go below $40 million, and was aghast when it did. “As a director in Australia you get punished if you ask for more information,” Packer says. “There is a real risk of being seen by ASIC as doing something inappropriate. I was getting the cash balance every day. In the last six months it went down from $100 million to zero.”

Sherman marvels at the ease with which Lachlan moved on from One.Tel, given the company blew $575 million belonging to the shareholders of News. If there is anyone Sherman admires from the failed company, it is Rich, who defied not only the Australian corporate regulator but also Australia’s two most powerful families – he took them on and won.

Packer, for his part, arguably never got over the One.Tel disaster. He still castigates himself for bringing News Corp into it and is grateful for Lachlan’s friendship. As Packer told his biographer Damon Kitney: “I had so much gratitude for the way [Lachlan] treated me after One.Tel that I regarded myself in his debt. I kept on trying to help him generally and actually ended up hurting him. The things I put to Lachlan, none of them ended up being good.”

Packer is not quite right about that. When he sold a 10 per cent stake in Realestate.com.au to Murdoch for $10 million in 2002, he was partly hoping that it would make up for the One.Tel debacle. As it turned out, Realestate.com.au would corner online property listings in Australia, which were some years ahead of those overseas, including the US, and Realestate.com.au would provide a beachhead for international expansion.

Through a combination of his connections and his own acuity, Lachlan had delivered to News Corp a controlling stake in a genuine digital growth asset that could underpin the legacy newspaper businesses for years. Depending on the prevailing share price, that 10 per cent stake James sold to Lachlan is now worth about $2 billion. Packer is philosophical about it, readily conceding that “There is no way I ever thought REA would be a $20 billion business.”

Aligning their values

Lachlan Murdoch walked out of News Corporation in 2005, and by the time his two-year non-compete clause expired his private investment company Illyria had compiled a dossier on every media business in Australia, including a perspective on how each outlet’s performance could be improved, the quality of the executives running it, and who else was interested in its assets.

The first dark clouds were rumbling in what would become the worst financial storm since the Great Depression. Through the second half of 2007, the US housing bubble burst and mortgage-backed securities markets worldwide froze over. Lachlan was undeterred. He finally began work on a multi-billion-dollar media deal of his own: the privatisation of Consolidated Media Holdings (CMH), which held James Packer’s remaining pay-TV and free-to-air interests and his stakes in Carsales.com.au and employment website Seek.com.au.

Packer believed the pay-TV and online assets were undervalued and teamed up with Lachlan in a 50:50 partnership to buy out the public investors for $3.3 billion, or $4.80 per share, 20 per cent more than the float price just months earlier, and a whopping premium to the market price. The fact that the two media scions were prepared to cast their lots in together showed how close Packer and Murdoch remained, despite the failure of One.Tel.

Joe Cross, who has been close to both men over the years, says they were “very much like brothers, joined in this together . . . it would have been easy for Lachlan to throw James Packer under the bus with his father, and he didn’t, and I think that James Packer respected him enormously for that and that really forged a much closer friendship.” As they sized up their joint bid for CMH, James could afford to fund his side of the deal outright. On Illyria’s side, Lachlan had support from San Francisco-based hedge fund SPO Partners. SPO had worked with Microsoft founder Bill Gates, and Lachlan stressed that the level of debt, $880 million, was manageable notwithstanding the credit crunch. “The majority of this bid is equity,” he said. “It’s not one of these deals where it’s nine parts debt and one part equity.”

As the financial worsened, however, SPO pulled out of the deal, sending CMH shares plunging as the takeover premium evaporated. Lachlan was in a race against time, with days or weeks to find a new investor. He was reportedly talking to Hellman & Friedman, whose director Brian Powers was a friend and ally of Kerry Packer, and the hedge fund Providence Equity Partners, where a former Star TV executive, Michelle Guthrie, was now working.

Guthrie started work on a bid, taking an urgent trip to Sydney, but Providence wanted even better terms than SPO. Watching currency, debt and property markets all turn against his casino developments, particularly in Las Vegas, James Packer baulked at the rising cost of the deal and pulled out. “[CMH] went from being an asset that I could afford to buy, to being an asset I’d like to sell,” he says, looking back. Without a partner, there was no way Illyria could afford to buy even half of CMH, and within weeks it was clear the whole deal would be a casualty of the financial crisis.

After all the hype about how the CMH deal would “unleash the entrepreneurial Murdoch blood”, as The Australian wrote, and that it would be followed by an Illyria bid for the whole of the former Packer media empire, as some analysts had tipped, the collapse brought another bout of speculation as to whether Lachlan had what it takes. Before long, however, most pundits reckoned Lachlan had dodged a bullet: as the financial crisis peaked with the collapse of Lehman Brothers, and as the economic downturn bit into CMH’s earnings from pay-TV, the value of the company dropped by more than a billion dollars. Rupert himself said Lachlan had “got lucky” with the collapse of the CMH deal, one he never understood or supported.

Channel switching: a ten out of ten debacle

At the end of 2010, in a move that stunned the media industry, James Packer pounced on an 18 per cent stake in Channel Ten, the free-to-air network that had been languishing third among the Australia’s three national commercial networks. Ten’s share register was wide open after Canada’s Canwest had gone into administration and sold off its majority stake a year earlier. Packer’s move confounded those pundits who reckoned he’d quit traditional media for good.

With hindsight, Packer cannot believe he was persuaded to reinvest in free-to-air television. “I have no idea why I went back into it,” Packer says now, while pointing out that in 2010 the rise of streaming was not so clear. Channel Ten had been considered a possible takeover target for Lachlan, and Packer approached his friend, offering him half his stake in Channel Ten at cost. At the time, Packer admits, he was partly motivated by a desire to make up for the One.Tel debacle, but he does not blame himself for the unmitigated disaster that ensued.

“I blame myself for One.Tel,” Packer says. “With Ten, Lachlan and I share the blame. He walked into it with his eyes open.” For his part, Murdoch jumped at the chance to get his teeth into Ten, and a few weeks later it was duly announced that Illyria would join Packer on the register, and Lachlan would go on the board.

One of Lachlan’s first big public moves at Ten turned out to be a spectacularly bad one. Everyone on the Ten board agreed that James Warburton, sales director of Channel Seven and the natural successor to Seven chief David Leckie, was the most capable media executive in the country, but no one believed Ten would be able to attract him. Lachlan volunteered that he knew James and offered to sound him out. The meeting went well – Warburton told Murdoch he was interested, and the Ten board was thrilled.

But as would emerge later in court, Leckie confronted Warburton, asking if he was close to Lachlan. “I’ve got to know him well,” Warburton replied. According to Warburton, Leckie replied: “You know me. If you want to leave to do Ten, no dramas.” Seven’s billionaire proprietor Kerry Stokes, however, was not so chilled and rang Lachlan, threatening: “I’m going to kill your company. I’m going to fucking kill it.” On the day Warburton’s appointment was announced, James Packer quit the board of Channel Ten without explanation, only weeks after he’d bought almost a fifth of the company.

Business reporters quickly filled in the blanks: Packer was opposed to the Warburton appointment, partly because he wanted to preserve his relationship with Stokes. Lachlan was dismayed; Packer had supported his approach to Warburton but had second thoughts after Stokes hit the roof. Lachlan was left holding the bag, and if he and Warburton had hoped that Stokes would accept the inevitable, they were dead wrong: a week later, Seven filed breach of contract proceedings against Warburton in the NSW Supreme Court.

By 2012 Channel Ten was turning into a disaster, and Lachlan and James Packer faced the dilemma of whether to throw good money after bad. As they discussed the dire situation, Lachlan was stunned when James offered to buy back his entire stake at the original purchase price as a make-good gesture. Lachlan refused to entertain the offer even for a moment.

This is an edited extract from Paddy Manning’s new biography The Successor: The High-Stakes Life of Lachlan Murdoch.

Paddy Manning is a freelance journalist who has worked for The Monthly, the ABC, Fairfax, Crikey and The Australian. He is the author of six books, including "Born To Rule: The Unauthorised Biography of Malcolm Turnbull" and "Body Count: How Climate Change is Killing Us", which won the non-fiction prize in the Victorian Premier's Literary Awards 2021.

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