Stormed by accusations, News Corp. (NWSA), a diversified global media company, announced measures to keep the British Sky Broadcasting’s bid alive by putting the deal on hold for about a year. However, recent data suggests that News Corp. lost approximately $7 billion of its worth in just four trading days, clearly reflecting the negative investor sentiments driven by allegations against the company.
Going by its strategy, News Corp. called off its earlier plan to spin off BSkyB's Sky News channel, thus sending the deal for referral to the Competition Commission of U.K. Previously, News Corp. agreed to spin off Sky News in order to stay away from the lengthy review process of the commission.
With the delay, News Corp. hopes to settle the public outrage for acquiring a 61% stake in BskyB worth $14 billion. However, jittery shareholders exited their investments in BSkyB and News Corp. on Monday, leading to declines of 4.8% and 7.5% in the share prices of BskyB and News Corp., respectively.
In a separate story, Associated Press reported that a faction of News Corp. shareholders sued the media giant over the phone-hacking scandal accusing it of major governance failure.
The shareholders also challenged the buyout of Shine Group by News Corp. Shine Group was founded by the daughter of News Corp.’s Chairman and CEO Rupert Murdoch.
In the middle of the strong media backlash and political pressures, Mr. Hunt, Cultural Secretary of U.K., asked the communications-industry regulator OFCOM and country’s Office for Fair Trading to advice on the future prospects of the deal.
David Cameron, the British Prime Minister also faced the media agitation for being associated with Rebekah Brooks, the chief executive of News International. Rebekah was the editor of News of the World during the alleged hacking.
Murdoch’s News of the World created a furore when it was reported that the tabloid had not only hacked the phone of the 13-year-old murder victim but also of celebrities and politicians. Murdoch shuttered the 168-year-old tabloid due to the growing outrage.
Yesterday, News Corp was again in the news with fresh charges of hacking and breach of privacy, which included illegal access to the bank account details of the former Prime Minister Gordon Brown and pilfering the medical records of his son. Moreover, the reporters of the media house were also accused of bribing royal bodyguards to generate information.
Earlier, the U.K. government had permitted News Corp. to acquire the satellite broadcaster BSkyB, provided News Corp. subjects Sky News to independent control. To relieve apprehensions about media dominance, News Corp. offered to spin off Sky News as a separate company, which was readily accepted by Jeremy Hunt at that time. News Corp. holds approximately 39% stake in Sky.
Murdoch’s decision to delay the deal would shield the British government from the public outrage and will ease the political pressure on Cameron.
Currently, we maintain a long-term ‘Neutral’ recommendation on the stock. Moreover, News Corp., which competes with Time Warner Inc. (TWX) , holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.
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