News of the World closure may aid Rupert Murdoch's BSkyB bid

Rapid action in the wake of allegations of wiretapping is hoped to contain the scandal and minimise fallout for News Corp in takeover bid.
Rupert Murdoch arrives at the Sun Valley Inn for the 2011 Allen and Co. Sun Valley Conference on Thursday. AP Photo
Rupert Murdoch arrives at the Sun Valley Inn for the 2011 Allen and Co. Sun Valley Conference on Thursday. AP Photo

News Corp's Rupert Murdoch has spent years clashing with unions, rivals and governments. Now the scandal at one of his British newspapers is threatening to become the biggest crisis of the 80-year-old's career.

"He's been through lots of scrapes and likes to live on the edge, but this must be the most complicated, fast-moving and risky mess he's been in," said Charlie Beckett, the director of the media institute Polis at the London School of Economics.

News Corp said on Thursday it would close the 168-year-old News of the World tabloid after allegations its journalists tapped the voicemails of murder victims, the families of dead soldiers, and paid police officers for stories. Mr Murdoch acquired the paper in 1969 as he expanded into the UK from Australia.

But there was also speculation the sudden closure of the UK tabloid could lift a cloud hanging over his planned £7.8 billion ($12.5 billion Dh45.74bn) takeover of the British broadcaster BSkyB.

A week-long consultation on additional conditions imposed by the government on News Corp for the takeover was set to end at noon in London yesterday. As of Thursday, more than 135,000 messages of objection had reached the culture ministry.

"Given the volume of responses, we anticipate that this will take some time," the departure for culture, media and sport said in a statement yesterday, without specifying a timetable.

"The secretary of state has always been clear that he will take as long as is needed to reach a decision."

David Cameron, the prime minister, said yesterday it was up to regulator Ofcom to decide whether News Corp was "fit and proper" to take full control of BSkyB. He also said the takeover review would take some time.

"There are proper organisations and procedures," Mr Cameron said. "It is very important that this is done in the proper way."

In deciding on the bid, Jeremy Hunt, the culture secretary, will consider "all relevant factors including whether the announcement regarding the News of the World's closure has any impact on the question of media plurality", the culture department said.

"No one ever expected this deal to go through smoothly," said Alexander Wisch, an equity analyst at Standard & Poor's in London. "I was expecting the deal to go through in the second part of the year, maybe it will drag on a bit longer."

Despite the rising chorus of calls for the deal to be blocked, analysts say Mr Murdoch's move to shutter the tabloid could improve his chances.

"We see it as something to restore or remedy a tarnished reputation for the News Corp group," said Stephen Adams, a fund manager at Aegon Asset Management, and a top 10 shareholder in BskyB. "But we also critically see it as reflection of News Corp's desire to progress the BSkyB bid and have full ownership of the company."

One banker who advises European media companies said it may still not be enough to ease public anger over the scandal.

"There will still have to be some executive scalps," he said.

One executive in peril is Rebekah Brooks, a former editor of the tabloid who is now the top official at News Corp's UK publishing unit.

"I think her position is unsustainable," said Ken Doctor, a media analyst at Outsell in California. "Given the gravity of what's involved, she has to take responsibility for that."

Mr Murdoch said this week that Mrs Brooks would remain in her position.

News Corp also owns the Fox TV networks and film studios, the Wall Street Journal newspaper and book publisher HarperCollins.

Closing the News of the World is an attempt to put the scandal in the past and smooth the approval process for BSkyB, said Laura Martin, an analyst with Needham & Co in Los Angeles.

"They're trying to increase the odds that it gets done before parliament breaks [for the summer recess]," Ms Martin said.

"It helps to shut down the enterprise that is morally questionable. The only reason to do it with such haste is to make sure it doesn't derail the regulatory process."

News Group Newspapers, the unit within News International responsible for the News of the World and its sister daily The Sun, reported an operating profit of £18.2 million in the year that ended on June 27, 2010, compared with an operating loss of £15.3m a year earlier, according to accounts filed at Companies House. News Corp reported revenue of US$32.8bn (Dh120.48bn) for the year that ended last June, with net income of $2.54bn.

"Financially, you wouldn't even notice it in News Corp," said Ed Atorino, an analyst at Benchmark in New York.

Mr Murdoch may seek to replace the revenue lost in the News of the World shutdown by adding a Sunday edition of The Sun, analysts said.

With reporting by Bloomberg News and Reuters

Published: July 9, 2011 04:00 AM


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