Inheritance taxing for Murdoch watchers

The happy news for the Murdoch household that Rupert's third wife is expecting his sixth child will once again provide industry watchers and analysts with the opportunity to indulge in one of their favourite parlour games - Who Wants to Be a Murdoch Heir?

Reports in America of the addition of a new son or daughter to the Murdoch brood will further complicate the already complex question of who will succeed him once he finally decides to step down.

Right now he shows no signs of slowing down - he has beaten a cancer scare and his marriage to 35-year-old Wendi Deng and a punishing fitness regime (he spars with a punch bag and has 0% cholesterol) appear to have re-energised him.

But the issue of who will take the reins of the sprawling empire when he goes continues to vex investors.

Up until five years ago, Mr Murdoch seemed set on his eldest son Lachlan, now 31 and publisher of the New York Post, taking over.

"Currently it is their consensus that Lachlan will take over. He will be the first among equals, but they will all have to prove themselves," he said in an interview at the time.

But recently he appears to have edged towards the idea of Lachlan sharing power with his younger brother James, 30, who has made a success of running the Star TV empire in Asia.

Star distributes 38 channels in eight languages to more thatn 300 million viewers, and the growth potential is huge. It recently made a series of major breakthroughs in China, the fastest growing broadcast environment in the world, and turned in its first profit last year.

"James reminds me of his dad. Lachlan is a little buttoned down. I think of Lachlan more as a lieutenant than general," a family acquaintance is quoted as saying in an article in Fortune magazine published today.

The fact that Lachlan has been handed a series of newspaper publisher roles, still Mr Murdoch's first love, while James is being groomed to take over the sprawling broadcast empire also adds credence to the power-sharing theory.

"Lachlan... has great leadership abilities. He has shown it in Australia. James has got great business abilities. He has done a fantastic job down there [in Asia]. He has not really had the love or closeness of newspapers that Lachlan has. He has not had that same experience yet, but there is plenty of time," said Mr Murdoch in an interview last year.

"I think they are very close and they will get on extremely well. It [the future leadership] will be more shared than it seems at the moment," he added.

There also remains an outside chance that his 33-year-old daughter Elisabeth, who is married to British PR guru Matthew Freud and left the family firm in 2000 to set up her own TV production company in London will return to News Corp in some capacity.

Peter Chernin, the chief operating officer at News Corp and Mr Murdoch's right hand man, would also be likely to play a key role in any succession plan.

"Peter Chernin is a great chief operating officer. My son Lachlan is coming on very strong. So is my son James," said Mr Murdoch in his latest interview, indicating he was happy to keep all the contenders guessing for the time being.

Most investors, and much of the News Corp board, don't yet see his children as ready to take over the helm and would prefer to see Mr Chernin take an interim role.

They are also likely to have far more of a say than they would have done five years ago, bearing in mind the increased focus on corporate governance post-Enron.

Mr Murdoch controls News Corp through a company called Cruden Investments, which holds about 20% of News Corp's overall equity and 30% of voting stock, meaning that any succession plan would have to be ratified by the board in any case.

This stake will be passed on to Mr Murdoch's children when he dies. They are Prudence MacLeod, 38, a daughter from his first marriage to Patricia, followed by Elisabeth Murdoch, 33, Lachlan Murdoch, 31, and James Murdoch, 30, children from his marriage to his second wife Anna Murdoch.

Mr Murdoch will also inherit a further 10% stake in Cruden from his mother on her death and that will eventually be passed on to his one-year-old baby, Grace, born in 2001 to his latest wife Wendi. The stake will be held by Ms Deng as a trustee until Grace is 30.

"They're the biggest shareholders, collectively, in News Corp. All of them, but particularly my two sons, are very interested in having major careers and I'm doing what I can to train them, give them opportunities and see what mistakes they make and what triumphs they have," Mr Murdoch said in a television documentary last year.

It remains to be seen where his new baby will fit in, but it is likely he or she will also be given a share of the 10% allocated to Grace.

Whatever Mr Murdoch decides, the decision is likely to be made behind closed doors rather than played out in public.

Mr Chernin, also interviewed for the Fortune feature, said: "We don't have battles over turf. None of that Mel [and] Sumner stuff." he said, referring to the ongoing leadership battle at Viacom between Mel Karmazin and Sumner Redstone.

Meanwhile, some News Corporation shareholders have privately mocked Mr Murdoch's plans to see his family dynasty succeed him, insisting once he is out the way it is unlikely it would be able to retain control of the company, which spans companies including 20th Century Fox and the New York Post in the US, BSkyB, the Times and the Sun in the UK and Star TV in Asia.

Whatever happens, and with Mr Murdoch's determination to grab a slice of the US satellite market and his appetite for deal-making showing no sign of abating, it is likely to remain a hypothetical question for some time, the succession will inevitably be far from smooth.

As Rupert's former wife of 32 years, Anna Murdoch Mann, predicted in an interview in 2001: "I think they're all so good they could do whatever they wanted. But I think there's going to be a lot of heartbreak and hardship with this."