After the high political drama in the U.K., with Rubert Murdoch’s episodic testifying before parliament about the hacking scandal, investors wonder about governance and succession issues. The ultimate question is what News Corp will be now that it abandoned a $12.5 billion deal buying the British Sky Broadcasting Group (BSkyB,) and what will happen with its existing stake in BSkyB, which lawmakers are now targeting.
Another issue is whether the News Corp. Ltd is now a great buy. Like in the case of BP Plc, only a month after the spill in the Gulf of Mexico, investors said that it’s a unique opportunity to buy. And indeed, BP was a good buy at certain point. Ultimately investors could see that BP had significant revenues that would eventually make up for the downside that occured and since the stock is now really cheap is definitely a take-over. Is that the case also with News Corp.?
In an attempt to arrest a steep slide in stock value, Rupert Murdoch’s News Corp. announced that it will buy back $5 billion in shares in the company. The company lost $7 billion in market value in just four days as the News of the World hacking scandal engulfs the company, but the buyback should help to bring up the price, and perhaps save the company’s planned takeover of BSkyB.
Another idea was that if there’s a discount in the satellite business, the cable TV business and all the other profitable media operations the group is running, the stock may be a take-over. A new management it may also prove to be the catalyst to unlock whatever value there is. Others who did the cash flow multiple work say the stock may be anywhere from 20 to 30% undervalue. So how can we figure it out?
Investors know that all the newspapers combined are a nickel of share holder value in terms of all the businesses the company is involved. Murdoch’s strategy to run businesses under multiple brands, will eventually help the media conglomerate to shield its operations in Asia and elsewhere from any possible effect the U.K. scandal may have. His group now owns assets estimated to $66 billion worldwide.
But investors feel insecure as day by day the News of the World story turns out to be bigger than initially thought. What seemed to be at first the corruption among few editors at a tabloid, trying to hack soccer players’ voicemails, is now testing England’s core political system by pointing out corruption among immense public figures. News Corp. and the News of the World have torn apart public’s trust and risen once again questions of how dangerous is media convergence. Murdoch’s efforts to keep the stock from sliding by putting massive amount of money on it may help keep the price up for a while, but will eventually the effect of the scandal stigmatize the company for good?