News Corp. sets $5 bil stock buyback

Wall St. downplays scandal's impact; U.K. unit responds to Brown charges

With political opposition and public outrage swelling in the U.K., News Corp. acted Tuesday to reassure investors by announcing a $5 billion stock buyback program, but the move wasn’t enough to stem the five-day slide in its share price.

Beyond the stock repurchase, there’s a growing expectation that Rupert Murdoch will soon take more dramatic steps to contain the damage caused by the flood of allegations that journos working for some of News Corp.’s U.K. papers engaged in illegal activities, from phone hacking to payoffs of police and other officials.

There was talk that the company would move to spin off or sell its News Intl. unit that houses U.K. newspapers, which include the Times, the Sunday Times, the Times Literary Supplement, the Sun tabloid and the now-defunct News of the World. Moreover, there’s increasing speculation that former News Intl. exec chairman Les Hinton would be ousted in an effort to quiet the critics calling for heads to roll at News Corp.

Hinton, a News Corp. lifer who now heads its Dow Jones unit, served as exec chairman of News Intl. from 1995 until he was tapped to run the Wall Street Journal’s parent company in December 2007, following News Corp.’s acquisition of Dow Jones. James Murdoch took on oversight of the News Intl. wing after Hinton shifted to Dow Jones. At the time, Rupert Murdoch called Hinton “a lifetime colleague,” but Hinton is now seen as a likely candidate to take the fall in the face of mounting allegations of unsavory activities within the unit.

A News Corp. spokeswoman declined to comment.

Despite the 15% drop in News Corp.’s stock price during the past week — shares were down 15¢ to close at $15.35 Tuesday on much higher volume of trading than its recent average — Wall Street remains mostly sanguine about the longterm impact of the U.K. scandal on News Corp.’s bottom line. But the controversy has put additional scrutiny on corporate governance issues in the media fiefdom tightly controlled by Rupert Murdoch.

While News Corp. is focused on salvaging its $12 billion bid for BSkyB amid the widening storm in the U.K., Nomura Securities analyst Michael Nathanson wrote Tuesday that the delay in the BSkyB approval process could be a plus to shareholders because it lessens the risk that Murdoch will be driven to pay a higher price for the remaining 61% of the satcaster out of eagerness to get the deal done.

Like many other observers, Nathanson noted that the News Intl. assets amount to only a sliver of News Corp.’s annual revenues. He estimated that News Intl. generated about 5%, or $1.75 billion, of the company’s revenue in fiscal 2011, with earnings of just under $130 million. His research note, titled “The Sky Is Not Falling,” maintains a buy rating on News Corp. shares.

But Nathanson also noted that the increased scrutiny on News Corp.’s governance will increase pressure on the company to make more efficient use of its $12 billion in cash on hand, a hoard projected to grow to $15 billion by next year. The plan to buy back $5 billion worth of stock on the open market during the next 12 months was an effort to address those concerns, especially as it appears the company won’t be calling on the cash to help finance the BSkyB deal any time soon.

“Given the latest shift in timing of the BSkyB deal, we are hopeful management will outline a clear strategy to address the current inefficient capital structure,” Nathanson wrote.

The note also hints of expectations that News Corp. prexy-chief operating officer Chase Carey’s influence will grow amid the scrutiny of its internal practices and the taint the U.K. scandal has left on heir-apparent James Murdoch and News Intl. prexy Rebekah Brooks. Nathanson wrote that more internal clout for Carey would be “a positive given his prior experience.”

It’s understood that about six months ago, Rupert Murdoch had briefly considered giving the CEO title to Carey while he remained executive chairman, but the plan never came to fruition. There was no immediate indication that the idea had resurfaced, though numerous Murdoch watchers say giving more authority to Carey would be a shareholder-friendly move.

Murdoch remained in the bunker with his top execs in London on Tuesday while Carey was in Germany for a board meeting of Sky Deustchland.

As more U.K. pols urged News Corp. to drop its takeover bid for BSkyB altogether in light of the mushrooming controversy at its newspapers, News Intl. said it was conducting an “inquiry” into allegations leveled Monday that the Sun illegally accessed medical records of former U.K. prime minister Gordon Brown and his family over a 10-year period. News Intl. denied that it unlawfully accessed medical records for Brown’s infant son for a 2006 story about the boy suffering from cystic fibrosis.

“We are able to assure the Brown family that we did not access the medical records of their son, nor did we commission anyone to do so,” the statement said. “The story the Sun ran about their son originated from a member of the public whose family has also experienced cystic fibrosis. He came to the Sun with this information voluntarily because he wanted to highlight the cause of those afflicted by the disease. The individual has provided a written affidavit this afternoon to a lawyer confirming this.”

The statement also defended the paper’s handling of the story and noted that it was unaware of any complaints made at the time it ran.

“We continue to inquire into other allegations made by Mr. Brown and implore him to provide details to us so we can establish the facts,” the statement concluded.

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