News Corp In Effect Withdraws BSkyB Bid? Has UK Phone-Hacking Scandal Sunk Rupert Murdoch’s Biggest Deal?
Shareholders Sue News Corp Over Scandal: Corporate Governance “Culture Run Amok”
Investors are clearly concerned that News Corp doesn’t have the appetite anymore to pursue its BSkyB bid because it looks unable to get the regulatory approval necessary for the 100% takeover. Not only did News Corp shares plunge 7.1% on Monday, but also BSkyB shares dropped 7.5% in London as a result of the widening UK phone-hacking scandal. Many investors fear that there’s a lot more bad news to come for News Corp as investigators delve into News Of The World’s newsgathering practices. “We are highly troubled by the way this scandal has played out over the last several years,” Cowen & Co analyst Doug Creutz says. “At the least, senior News Corp management appears to have been guilty of severe ignorance of the extent of the unethical activity despite having had ample time to uncover the truth.” But some analysts see a silver lining in the scandal. If News Corp scraps the BSkyB acquisition, then it increases the chance that Rupert Murdoch will give cash to shareholders — probably by buying back News Corp stock. And if he is just delaying the deal, then he may end up paying less than he would now for the 60% of BSkyB that he doesn’t already own. “We think the deal will eventually be approved, but it may be delayed several months” says bond analyst Dave Novosel of Gimme Credit. “However, we expect that News Corporation will be forced to fire some executives to cool the recent furor surrounding the hacking of phones. We think it is unlikely that James Murdoch is one of them, although some reports are suggesting that it a possibility.”