Findings Bolster Calls for News Corp. Change

The Nathan Cummings Foundation

 

Findings Bolster Calls for News Corp. Change

 

 Findings Bolster Calls for News Corp. Changes

By Amy Chozick

May 2, 2012

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Another typical day in Rupert Murdoch’s media empire: he gets attacked in Britain and his company’s stock goes up.

A British parliamentary panel’s report on Tuesday declared that Mr. Murdoch was “not a fit person to exercise the stewardship of a major international company.”

But while the panel’s findings dealt another blow to Mr. Murdoch’s relationship with the British government, they sent positive signs to Wall Street. Shares of News Corporation closed up 1.21 percent on Tuesday to $20.08, a 43 percent increase from the 52-week low reached last summer.

Many investors, weary of the Murdoch family’s disproportionate control over the company, viewed the report as further evidence that a change of leadership was needed.

“The remarks about Murdoch today make this more of a corporate crisis than anyone could’ve imagined,” said Michael Pryce-Jones, a spokesman for the CtW Investment Group, a shareholder activist group that works with pensions of large labor unions. Mr. Pryce-Jones again called for accountability on the News Corporation board, including the removal of James Murdoch, who the British report said displayed “willful ignorance” of the extent of phone-hacking while he was running the British newspapers.

Investors have long supported Chase Carey, the News Corporation’s president and chief operating officer, who has remained largely unscathed in the phone hacking crisis in Britain.

“Every time Murdoch gets knocked down a rung and it looks like Chase Carey will become a louder voice at the table, investors say ‘Sounds good to us,’ ” said Todd Juenger, a media analyst at Sanford C. Bernstein & Company.

In a statement, the News Corporation called parts of the British report “unjustified and highly partisan.” Support for the “not a fit person” wording was split along party lines, with Labour and Liberal Democrat members in favor of the wording and Conservative members opposed.

Executives of News Corporation had largely braced for an indictment by the parliamentary panel, but they had not expected the lawmakers to single out Mr. Murdoch so personally.

“Rupert is still in denial about how quickly his influence and prestige in the U.K. has gone down the drain,” said one person close to the company and Mr. Murdoch who could not publicly comment on private discussions.

The report from the Parliamentary Select Committee on Culture, Media and Sport could influence the investigation of Ofcom, the British media regulatory body, into whether News Corporation is “fit and proper” to hold a broadcast license in Britain. If the company were to be found unfit, it could have to divest its 40 percent stake in BSkyB.

Last summer, News Corporation withdrew its $12 billion bid for the 60 percent of BSkyB it does not already own. That move came during legal scrutiny of its News of the World tabloid, which had hacked into the voice mails of a kidnapped teenager.

The broadcaster, which posted an operating profit of $1.7 billion in 2011, would have provided News Corporation with a steady revenue stream.

Several shareholder groups pointed to the British report as further evidence of broader corporate governance issues.

“This definitely adds fuel to the fire in a lot of ways,” Simon Greer, president and chief executive of the Nathan Cummings Foundation, a charitable organization and institutional investor that owns 3,686 shares of News Corporation’s Class B voting shares.

The foundation and others have called for an end to News Corporation’s dual-class voting structure, which gives Mr. Murdoch and his family 39 percent of the voting rights, despite owning a 12.5 percent financial stake in the company. “If this report leads Ofcom to make News Corporation sell its stake in BSkyB, then you might see other directors or shareholders say this is literally costing us money now,” Mr. Greer said.

But it is also possible that a retreat from BSkyB could be greeted positively by Wall Street, which has long called for News Corporation to shed some of its minority-owned assets in an effort to increase its share price, which trades below its major media competitors.

Two former Federal Communications Commission officials said they doubted that the British report would affect News Corporation’s United States broadcast licenses. Reed Hundt, a former F.C.C. chairman, said in an interview that without any evidence of wrongdoing in the United States, he believed it was “a bridge too far” to think that the parliamentary report would cause the FC.C. to begin a review of the News Corporation licenses.

“If I were back sitting in the seat of F.C.C. chairman, I would say that, being fair and balanced, there is no significant risk that Fox would lose its licenses,” unless evidence surfaced here of illegal hacking similar to that in Britain, Mr. Hundt said.

Tammy Sun, a spokeswoman for the F.C.C., said no current F.C.C. officials would address the subject.

Analysts don’t expect shareholders’ pleas or the fallout in Britain to loosen the Murdoch family’s grip on News Corporation.

“If you don’t like Rupert Murdoch or the Murdoch family, don’t invest in News Corporation,” said Richard Greenfield, a media analyst for BTIG Research. “If you don’t like the Murdochs, buy Disney stock.”

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