Stock drops as uncertainty grows about long-term impact of U.K. probes
News Corp.’s stock price took a dive again Monday as the swirl of scandal-related developments heightened the drama surrounding today’s skedded appearance by Rupert Murdoch and son James before the parliamentary committee investigating allegations of wrongdoing at some of News Corp.’s U.K. newspapers.
News Corp. shares were down 68¢, or 4.3%, to $14.97 at the close of trading. The stock price has sunk nearly 14% since July 5, after allegations of misconduct at the News of the World and other papers at News Intl. erupted anew in the U.K.
News Corp. boss Rupert Murdoch and deputy chief operating officer James Murdoch, who oversees operations in Europe and Asia, are skedded to be questioned today by members of the House of Commons committee investigating charges of phone-hacking and police bribery that have rocked the company and the nation. Also set for questioning is Rebekah Brooks, the former News Intl. prexy who was arrested in connection with the phone-hacking mess on Sunday, two days after she resigned her post.
Numerous observers note that James Murdoch’s performance on the hot seat today could be key to his chances of succeeding his father as News Corp. chairman and CEO. And, in light of the widening investigations, there’s pressure on Rupert Murdoch to eventually cede more decisionmaking authority, if not the CEO title outright, to his current No. 2, prexy and COO Chase Carey.
Sources said some of News Corp.’s independent board members, including Kleiner Perkins partner Tom Perkins and Georgetown U. law professor Viet Dinh, are pressing Rupert Murdoch to at least temporarily remove James from his role as chairman of satcaster BSkyB to help assuage critics in the U.K.
The numerous probes into operations at the News Corp. units in question will undoubtedly scrutinize James’ role in handling the allegations of misconduct at News Intl. and his approval of past settlement deals with individuals targeted by News Intl. journos.
Given the groundswell of anti-Murdoch sentiment in the U.K., Wall Streeters who follow News Corp. speculate that the company could face political pressure to reduce its stake in the U.K. TV giant. That would be a humbling about-face for News Corp., which was close to acquiring full control of BSkyB earlier this month before new allegations of phone-hacking forced the company to drop its bid.
In preparation for today’s sesh in Parliament, News Corp. on Monday announced the appointment of prominent British lawyer Anthony Grabiner as chairman of the company’s newly established Management and Standards Committee, described as “an independent body outside of News Intl.” tasked with aiding investigators probing the various allegations leveled against News Intl. units. The committee reports to News Corp. exec veep and board member Joel Klein, who has emerged as a key consiglieri for the Murdochs as legal considerations from the scandal mount. In overseeing the committee, Klein reports to board member Dinh, who oversees News Corp.’s governance committee.
But as much as News Corp. tries to quash the fires, new flares arise. On Monday, the uproar claimed another high-ranking public official, John Yates, assistant commissioner at the Metropolitan Police and the U.K.’s second-most powerful police officer. Yates’ resignation came a day after the resignation of his boss, Metropolitan Police Commissioner Paul Stephenson.
As the fallout continued to spread, Prime Minister David Cameron, whose own office has been touched by the News of the World scandal, announced that Parliament would delay the planned Wednesday start of its summer vacation to address the mounting allegations of corruption and bribery involving high-ranking officials.
Although News Corp.’s stock price has taken a beating, Wall Street continues to express skepticism that the scandal will have lasting impact on News Corp. operations beyond a possible loosening of Murdoch’s iron grip as CEO and more oversight by independent board members.
Nomura Securities analyst Michael Nathanson issued a research note Monday maintaining a buy rating on News Corp. shares at a $20 price target. He suggested the fallout will be a drag on shares for the near term. “Given the likely shift to both greater internally led scrutiny and U.S.-focused investigation, we would expect to continue to see a slew of headlines surrounding the investigation,” Nathanson wrote. “Until any new material evidence is discovered, we believe this will remain just headline risk and not have any material impact to the fundamentals of the company.”
Rich Greenfield, a widely read analyst with BTIG Research, echoed Nathanson’s sentiment in a blog post that explained in detail why it’s unlikely News Corp. will face serious legal problems in the U.S. or the loss of its TV station licenses.
“While investors may fear that advertisers will no longer want to advertise on the Fox network or on the Fox News network, or that consumers globally will no longer want to go to a Fox feature film due to Murdoch ownership, this appears to be an emotional stretch that is simply too wide to make,” Greenfield wrote.
Beyond the corporate intrigue, an even more dramatic development emerged Monday when Sean Hoare, the former News of the World showbiz reporter who was the first to allege that then-editor Andy Coulson was aware of phone hacking by his staff, was found dead at his home. (Coulson was former press secretary to Prime Minister Cameron until the News of the World scandal forced his dismissal in January; he was arrested earlier this month.)
Hoare worked on the Sun and the News of the World with Coulson before being dismissed for alleged alcohol and drug problems. A police spokesman said the “death is currently being treated as unexplained, but not thought to be suspicious.”
Adding insult to injury, rogue hacker group LulzSec, which plagued Sony Corp. this spring, took aim at the websites of News Intl. and its tabloid the Sun. The paper’s website was hacked on Monday to redirect visitors to a bogus story about Rupert Murdoch committing suicide. By day’s end, websites for all of News Intl. papers had been taken offline.