Fin - Breakout - US

Murdoch’s Empire Threatened by Hack Scandal

Jeff Macke
Breakout

Buy the rumor, sell the news. This ancient trading stratagem has taken on an ironic, if not headline worthy pun hue in the wake of Rupert Murdoch's News Corp (NWSA) shuttering its News of the World tabloid newspaper after an ethics scandal. Those familiar with Murdoch's tabloid-worthy business history may be wondering precisely how bad an ethical breach might have to be to scandalize the owners of the NY Post, a paper which once reported a murder with the headline "Topless Bar, Headless Body!".

How about reporting techniques involving bribes, police pay-offs, phone tapping and hacking? It's salacious stuff many of us on the other side of the pond are only now getting wind of. To help get us all up to speed Breakout welcomed Porter Bibb, the Managing Director of Mediatech Capital Partners. Porter tells us the practices being exposed have involved UK Royalty from football stars to movie stars to... well... royalty.

While wide in scope by UK standards, the News of the World debacle would likely have remained back-page news to those of us already experiencing Pippa fatigue were it not taking a turn for ugly. Things are getting worse for News Corp. because the story is "moving very rapidly from social outrage... to the legal area," says Bibb. Even heir apparent Jamie Murdoch could be "ensnared."

One look at the Murdoch-heavy News Corp org chart makes it obvious that family members becoming embroiled with extended, salacious trials potentially ending in imprisonment is a bad thing for the company. The case raises "questions of ethics which leads to leadership," says Bibb. That would include the board of directors and anyone involved with the now dead NotW. Closing the paper was a "well thought out and appropriate measure in terms of damage control," offers Bibb, but nowhere near sufficient to stop the fire.

With News of the World representing a tiny portion of the News Corp empire and considering the company is widely believed to be far too insular at the top, traders could conclude that a little legally enforced turn-over at the top of the conglomerate may be a good thing once the dust settles. Alas this optimism is tempered, if not mercilessly boot-stomped by the fact that the deal once considered the growth driver of the future for News Corp is now all but dead.

News Corp was on the verge of completing a purchase of broadcasting giant British Sky Broadcasting Group or "BskyB" (BSY). While News Corp already owns 39% of the satellite juggernaut, taking control of the rest could have resulted in BskyB representing from "30 - 35% of News Corp's profits," says Bibb. The deal was to be rubber stamped last week. A decision has now been postponed until at least September with approval expected either never or until there's resolution in a Parliamentary in depth study of reporting practices, whichever comes first.

Approved acquisition or not, until the outcome of Murdoch and Co's assorted trials can be properly wagered this is one instance where it's most prudent to follow the rumors before buying some News.

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