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Chernin's Huge Severance Was Probably Worth It

Peter Chernin, News Corp's President and COO is leaving the company at a particularly terrible time—the stock down by two thirds over the past 12 months. And his severance looks particularly inappropriate in light of News Corp's recent $6.4 billion quarterly loss.

But Chernin' enormous Golden Parachute was most likely worth it for News Corp .

Chernin is CEO Rupert Murdoch's right hand man — well respected and liked in both Hollywood and Wall Street, for his key operating discipline. But the real reason he deserved a sweeter-than-usual exit deal is the fact that he was never going to succeed Murdoch as CEO. The fact that Murdoch was always planning to have one of his children — now likely son James — replace him in the company's top spot, would understandably frustrate Chernin, who in any other circumstance would be able to ascend to number one. The fact that he knew his potential was limited at News Corp meant the company had to be generous when his contract was last renegotiated in 2004.

Throwing in the corporate jet kept a key executive, but perhaps more importantly it also guaranteed investors that Murdoch's son James wouldn't be given too much responsibility too early. RBC Capital Markets' David Bank says Wall Street liked the reassurance Chernin's presence provided — having him stay in his number two spot meant that young James would continue to get to earn his chops. And that's a security blanket that was probably worth the incredible costs.

In this recession, the perks in Chernin's contract do seem totally over the top. His exit entitles him to a movie a lucrative TV and movie production deal with 20th Century Fox, in which the studio is required to purchase two films a year for six years. Chernin gets 50 hours of corporate jet usage per year, valued at $1.65 million. He'll get a car and driver, worth $210,000. And he might also be entitled to $1 million plus of secretarial services, depending on how the contract is interpreted.

Still, in 2004 when it was all negotiated, the DOW was hovering between 10,000 and 11,000 and these kinds of perks were par for the course. No longer.

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