BSkyB back-off propels News into recovering some of its loss

SHARES in Rupert Murdoch's News Corporation rallied yesterday after the company announced that it was abandoning its bid for British broadcaster BSkyB because of the phone-hacking scandal that has engulfed the company.

By InvestSMART · 15 Jul 2011

By InvestSMART ·
15 Jul 2011

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News Corp voting shares rose 46?, or 3.1 per cent, a rare positive performance in a media sector caught up in gloom over the outlook for retail advertising.

The decision to abandon the bid for complete control of BSkyB, made hours before a humiliating unanimous vote against the deal in the British House of Commons, also frees up $US12 billion in cash.

But with the threat of US regulatory action looming, yesterday's gains could not make up for falls since the phone-hacking scandal gripped Britain.

A former British prime minister, Gordon Brown, who was targeted by News Corp's British papers, also called on regulator Ofcom to investigate whether the company was a "fit and proper person" to retain its existing 39 per cent stake in BSkyB.

The pay TV company is also under pressure from institutional investors to sack Mr Murdoch's son, James, as BSkyB chairman and clean up "questionable governance practices".

"BSkyB has been run as an arm of News Corp," one major investor said. "This was tolerable with the bid situation. It's not any more. Change needs to happen - and from the top."

News Corp's rise came as other media stocks fell after retailer David Jones issued a shock profit downgrade late on Tuesday night.

Shares in the Herald's publisher Fairfax Media, which is heavily dependent on retail advertising, fell for the third day running, shedding 2?, or 4.2 per cent, to 91?. TV groups Seven and Ten also fell as did radio network Austereo.

Despite yesterday's surge, at the close of Australian trade yesterday News Corp voting stock was still languishing $1.84, or 10.7 per cent, below its level last Monday.

The fall in News Corp's share price had cost Mr Murdoch and his family, with about 38 per cent of the voting stock, about $US750 million on paper, the Financial Times reported.

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Frequently Asked Questions about this Article…

Why did News Corp abandon its bid for BSkyB and how did that affect News Corp shares?

According to the article, News Corp abandoned its bid for full control of BSkyB because of the phone‑hacking scandal surrounding the company. The announcement triggered a short‑term rally — News Corp voting shares rose about 3.1% — but the gains didn’t make up for earlier losses tied to the scandal.

How much cash did News Corp free up by walking away from the BSkyB bid?

The article says abandoning the bid freed up around US$12 billion in cash for News Corp, since it was no longer pursuing complete control of BSkyB.

What regulatory risks for News Corp and BSkyB were highlighted in the article?

The article notes calls for regulator Ofcom to investigate whether News Corp is a “fit and proper person” to retain its existing 39% stake in BSkyB. It also mentions the threat of possible US regulatory action remaining a concern for investors.

Did the phone‑hacking scandal have wider effects on media and advertising stocks?

Yes. The article reports that other media stocks fell after retailer David Jones issued a surprise profit downgrade, worsening gloom about retail advertising. Fairfax Media shares fell about 4.2%, and TV groups Seven and Ten and radio network Austereo also declined.

What governance issues and investor pressure around BSkyB were described?

Institutional investors pressured for changes at BSkyB, including calls to remove James Murdoch as chairman and to address “questionable governance practices.” One major investor said BSkyB had been run as an arm of News Corp and that change was needed from the top.

How much of a paper loss did the Murdoch family face because of the share price fall?

The article reports the fall in News Corp’s share price cost Rupert Murdoch and his family about US$750 million on paper, given they own roughly 38% of the voting stock.

Even after the rally, are News Corp shares back to their pre‑scandal levels?

No. The article says that despite the surge, News Corp voting stock was still about US$1.84, or 10.7%, below its level from the previous Monday, so shares had not fully recovered.

What should everyday investors take away from the News Corp/BSkyB developments covered in the article?

Based on the article, investors should note that corporate scandals and regulatory concerns can cause large swings: News Corp saw a short rally after abandoning the BSkyB bid but remained well below earlier levels, with ongoing regulatory and governance questions. The story also affected broader media and advertising‑linked stocks, illustrating how sector sentiment can be influenced by company‑specific events.