Phone hacking scandal: News Corp for BSkyB on hold, so are shares now a buy?

11th July 2011

Rupert Murdoch's bid for outright control of BSkyB has been referred to the UK Competition Commissio.

As reported in the Financial Times (paywall) Mr Murdoch has abandoning his undertaking to spin off control of Sky News, which had been a pre-requisite of the deal going through.

Jeremy Hunt, culture secretary, responded to the news within minutes, telling MPs that he would now refer the bid to the Compeitition Commision.

Mr Murdoch's aggressive move came as the phone hacking scandal that led to the closure of the News of the World Sunday tabloid threatened to spread to other parts of his newspaper empire.

What is clear is that political pressure on the News Corp bid for BSkyB continues with Deputy Prime Minister Nick Clegg appealing to Rupert Murdoch to call off the deal following a meeting with the family of murdered schoolgirl Milly Dowler, whose phone was hacked by News of the World journalists. Clegg's views are reported here on HuffPost UK

The Dowler family have now called for News International chief executive and former News of the World editor Rebekah Brooks to resign.

The Telegraph warns here that the American authorities could take a very dim view of US listed News Corp having been involved in payments to the UK police which would be viewed as corruption and could breach America's Foreign Corrupt Practices Act. The paper quotes experts from the US, saying that it could face a $100m dollar bill as a result.

Mike Koehler, an FCPA expert and law professor at Butler University, says: "Enquiries often start with a limited set of facts but very quickly morph into an examination of the entire business. They tend to be very cumbersome and because they are newsworthy they cause a lot of reputational damage."

The newspaper also talks to Thomas Fox, a lawyer and FCPA expert based in Houston, who told the paper: "It may be difficult to understand how expensive and all-encompassing FCPA is. If you don't have anti-corruption policies in place that's the first strike against you and it's downhill from there."

FlyingScud sees a delicious irony: "Mr Murdoch became an American citizen to further his US business interests – only for the US Govt to go after him hammer-and-tongs! Live by the sword, die by the sword."

But on Citywire the Dumb Investor has piled into BSkyB. One commenter Tony Peterson believes the Dumb Investor has been less astute even than usual:

"What do you think will happen to the share price when Rupert is forced (as an unfit and improper person) to divest himself of his holding once OfCom makes the only conclusion it can about NewsCorp's fitness and propriety? Astute move of yours? Ho ho ho."

Other more expert fund managers are also considering valuations. Elsewhere in Citywire the website quotes Ian Whittaker, analyst at Liberum Capital, who says: "Short-term reaction is the shares would likely fall but the 12% fall last week now means Sky is trading bang in line with the sector's performance since June 2010 when the bid was announced.'

Whittaker sees value whether the deal goes ahead or not. But what about views on the deal itself?

The website also quotes various views on the bid. Alex DeGroote of Panmure Gordon gives it a ten per cent chance. However, Patrick Yau, analyst at Peel Hunt believes it will go through eventually and investors must be patient.

Some of the commenters are scathing however. David Henry says: "Not sure if these wise fund managers in the City are fully aware of what the law says on the matter for corporate cover-ups and paying police for information. The Riper Act 2000 makes it a criminal offence not just for the individuals who hack into private communications Section 1 but also for the Corporate and senior management if there is evidence of ongoing criminal acts and that the management knew or should have known Section 79.

"Clearly the later relates to all the senior management at News International. So all bets are off but it's a fair bet that News Corp which owns News International will be investigated. 'Fit and Proper' will be the test they need to pass if they are to be allowed to take over BSkyB and/or even keep a single share in a UK broadcast company. If that was to be the case then the shares are not worth the current trading price."

Here the BBC provides a handy Q&A about why News Corp might want to take over BSkyB and other aspects of the deal.

It writes: "BSkyB is about to become a cash cow. Having done most of its infrastructure investment and secured a large slice of the pay-TV market, the money should start rolling in.

"Also, News Corp sees huge opportunities to offer BSkyB customers more bundled and cross-promotional deals with the media empire's other assets, such as The Times. It would create a powerful group able to deliver media across many platforms in this new digital age."

That was the logic a week ago at least.

But, back in the present day, on the Telegraph message boards, TheBoggart says:

" Rosebud is the mysterious word uttered by the dying tycoon and newspaper baron in Orson Well's masterpiece film Citizen Kane. Who on earth can he be referring to?

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