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News Corp. shares hammered in wake of British phone hacking scandal

July 8, 2011 |  5:27 pm

News Corp. shares hammered in wake of British phone hacking scandal
Shares in Rupert Murdoch's empire, News Corp., have been roughed up this week as the British phone hacking scandal continues to cast an ominous cloud over the global media company's management.

By Friday, after four days of salacious news coverage, shares of News Corp. had fallen 6%, erasing $2.6 billion in market value. A week ago the shares were trading above $18. They closed Friday at $16.75 in New York.

The crisis has tarnished the reputation of Murdoch and his youngest son, James, who four months ago was elevated to the No. 3 management spot in News Corp. Now deputy chief operating officer, James Murdoch has been in charge of the company's Asian and European operations, including its British newspapers, since 2007.James Murdoch

The biggest concern so far for investors is that the controversy threatens News Corp.'s bid to take control of a media jewel -- Britain's largest pay TV service, British Sky Broadcasting. Government regulators had been expected this month to approve News Corp.'s buyout of the remaining BSkyB shares. Analysts now predict that approval of the BSkyB deal could be delayed up to a year, a costly proposition for  News Corp. 

BSkyB investors also have taken it on the chin as its shares have lost 12% in value this week.

In an attempt to quell the outcry in Britain, James Murdoch on Thursday announced that British subsidiary News International was shutting down the 168-year-old News of the World, the tabloid at the center of the storm. Sunday's edition will be the paper's last, a closure that eliminates the jobs of 200 newspaper staff members. 

Two people were arrested Friday in London in connection with the scandal, including former News of the World editor Andy Coulson, who until earlier this year was an aide to British Prime Minister David Cameron. Police also are investigating whether a News International executive deleted millions of emails to obstruct Scotland Yard's probe of the phone hacking scandal, the Guardian reported.

There are increasing questions about James Murdoch's involvement. He acknowledged his oversight in approving payouts for victims of the phone hacking scandal. "I did not have a complete picture when I did so. This was wrong and is a matter of serious regret,” James Murdoch said Thursday.

OldRupert Analysts said the scandal could force the company to review its management succession plans.

"There have been questions about whether these events undermine James Murdoch’s credentials to succeed his father, and perhaps that is why News Corp.'s share price is lower," Needham & Co. media analyst Laura Martin wrote in a research note Friday. "We don't think so."

She wrote that Wall Street investors have a favorable impression of News Corp.'s second in command, Chief Operating Officer Chase Carey. Shareholders, she wrote, do not know James Murdoch well enough to assess his ability to run the company.

Martin did speculate that the controversy could hasten the retirement of 80-year-old Rupert Murdoch. Since he controls News Corp. through his super-voting shares, Rupert Murdoch could not be forced out.

"There is no question that Rupert will go down in history as one of the best businessmen and most accurate visionaries of his age," Martin wrote, adding that News Corp. stock would be worth less "without Rupert Murdoch at the helm, regardless of who he hands the reins to."


News of the World shuts down amid hacking scandal

News Corp. general counsel Lon Jacobs to leave media giant

News Corp.'s news of the World debacle will have big aftershocks

-- Meg James

Top photo: A photo illustration of various front pages of London newspapers reporting on the closing of News of the World. Credit: Stewart Stanley / Getty Images

Middle photo: James Murdoch arrives for work Friday at News International in East London.  Credit:  Ki Price / AFP/Getty Images  

Bottom photo: News Corp. Chief Executive Rupert Murdoch on Friday at the Allen & Co. media conference in Sun Valley, Idaho.  Credit: Scott Eells / Bloomberg News