IE 11 is not supported. For an optimal experience visit our site on another browser.

Murdoch empire left shaken as deal collapses

Rupert Murdoch’s global empire is under siege, with its future direction in doubt after the media mogul's News Corp. was forced to withdraw its ambitious bid to take over Britain's top broadcaster.
Image: File photo of Sky News logo seen on television screens in an electrical store in Edinburgh
The Sky News logo is seen on television screens. News Corp has withdrawn its bid to buy out the 61 percent of broadcaster BSkyB it does not already own, the company said Wednesday.David Moir / Reuters
/ Source: news services

Rupert Murdoch’s global empire is under siege, with its future direction in doubt after the media mogul's News Corp. was forced to withdraw its ambitious bid to take over Britain's top broadcaster, British Sky Broadcasting.

Amid mounting pressure from all sides of Britain's political spectrum and public outrage over a widening phone-hacking scandal, Murdoch was forced to withdraw his $12 billion bid for the 61 percent of BSkyB not already owned by News Corp. Wednesday.

“They’ve probably thought after some pretty savage attacks on them out of the [British House of] Commons today there’s no way they can go through with this,” said Ian Whittaker, media analyst at Liberum Capital. “Probably they also didn't want the spotlight on them. There are worries about it spreading to the U.S.”

Prime Minister David Cameron welcomed the news, a spokesman said. The British parliament was due to pass a non-binding vote Wednesday telling Murdoch to drop the deal.

News Corp. Chairman Chase Carey said in a statement that the company had believed that the “proposed acquisition of BSkyB by News Corp. would benefit both companies, but it has become clear that it is too difficult to progress in this climate,” adding that News Corp. would remain a long-term BSkyB shareholder.

News Corp. has faced growing anger over the past week amid growing disclosures that that reporters and investigators for Murdoch-owned newspapers had intercepted phone messages of a murdered girl, other crime victims and bereaved families of soldiers.

News Corp. have declined 7 percent in recent days, shaving around $3 billion off the value of the company. On Tuesday the media conglomerate said it plans to buy back $5 billion in stock over the next 12 months to try to contain the financial impact of the growing scandal.

Now investors are asking what might be the broader impact on Murdoch’s global News Corp. empire, which includes the Fox broadcast network, cable channels such as FX and Fox News, television stations, the 20th Century Fox movie studio and newspapers around the world, including The New York Post, The Wall Street Journal and The Sun in the U.K.

The allegations have left the Murdoch news brand tarnished, said Lloyd Grove, editor at large for Newsweek and the Daily Beast. The growing scope of the hacking scandal is raising concerns about whether other highly placed members of Murdoch’s global empire will be implicated in the scandal, he added.

“We really don’t know where this is going,” Grove told CNBC. “People are comparing it, rightly, to Watergate.”

Bob Pittman, chairman of media and entertainment platforms at Clear Channel Communications, was more optimistic in his outlook, saying that large companies like News Corp. are like families with many children.

“Sometimes the kids do something they’re really not supposed to do, sometimes terrible things, but they’re separate from the core values of the company,” he told CNBC, adding that he doesn’t think the alleged actions of News Corp.’s U.K. newspapers have tarnished the whole company.

“I’m not seeing this reflected in the Fox News network,” he said. “The U.K. arm is a piece of the empire, but it’s hardly the biggest bit part of it.”

The Financial Times’ media editor Andrew Edgecliffe-Johnson said the News Corp. empire is less a family and more a litter of puppies.

“Investors in the U.S. always saw these strange British newspapers that they didn’t pay much attention to as the runts of the litter,” he told CNBC.

“No one really knew if they were going to survive,” he added, noting that these investors saw these newspaper businesses as a slow growth — if no growth — sector and didn’t factor them into the investment case for News Corp.

“Suddenly, all eyes are on the runt of the litter and all the questions are focused on how much of an impact that will have on the rest of the business,” he said.

Questions are also now being asked about the leadership of News Corp.’s chief executive, Rupert Murdoch.

If News Corp. operated like many corporations in the midst of scandal, the CEO's job would be in jeopardy. But the media conglomerate runs more like a family dynasty. Analysts suggest Murdoch, its 80-year-old patriarch, is likely to maintain his grip for now.

As the company's chief executive since 1979, Murdoch has built an empire with a wide array of media assets.

He controls the company through a family trust that owns 40 percent of the voting stock and the largest chunk of News Corp.'s shares at 12 percent. Before withdrawing the bid, Murdoch tried to put the issue on the backburner while public outrage subsides.

And he took the bold step of shuttering the 168-year-old News of the World tabloid at the center of the crisis, which published its last edition on Sunday.

Still, many observers point to the crisis as indicating a problem at the top echelons of the company.

Several high-ranking executives may be swept up in a simultaneous criminal probe, including Murdoch's son and deputy chief operating officer, James Murdoch, who as head of European and Asian operations authorized payments to hacking victims; the chief executive of U.K. subsidiary News International Rebekah Brooks, who edited News of the World when some of the hacking occurred; and Les Hinton, who was chairman of News International during some of the years the abuses took place, and is now chief executive of Dow Jones & Co.

The probe has also raised the specter of possible charges in the U.S. under the 1977 Foreign Corrupt Practices Act, whose anti-bribery provisions could ensnare executives if allegations of payoffs to British police officers are proven.

"This is going to have ripple effects over in the U.S., too, but it may take a while for it to all play out," predicted newspaper analyst Ken Doctor of Outsell Inc.

Doctor speculated that Murdoch could choose to step aside as CEO and retain only his chairmanship. That would leave open a question of who succeeds him, a family member or chief operating officer Chase Carey.

"Like a monarch out of Shakespeare, Rupert has been testing out successor scenarios for years," Doctor said. "The pressures on the share price may force him to do something now because the share price is important to him and his company."

A shareholder lawsuit called out the company's purchase this year of Shine Group, the TV production studio run by Murdoch's daughter Elisabeth Murdoch. The 415 million pound ($661 million) deal was cited as an example of nepotism that has plagued the company. In an amendment filed last week, the shareholders jumped on the phone hacking as a new reason why News Corp. needs an executive shake-up.

"These revelations show a culture run amuck ... and a board that provides no effective review or oversight," the shareholders asserted in a filing with the Delaware Chancery Court.

The suit alleges that Murdoch treats News Corp. "like a family candy jar, which he raids whenever his appetite strikes." The shareholders own nearly a million shares, a tiny fraction of 1 percent of the more than 1.8 billion outstanding.

Several recent acquisitions also point to poor investment decisions by Murdoch.

Last month, News Corp. offloaded social networking site Myspace for $35 million, a fraction of the $580 million it paid in 2005, and after more than $1 billion in cumulative losses over nearly three years.

In 2009, it was forced to write down $2.8 billion of the value of Dow Jones & Co. Inc., which it bought two years earlier for $5.7 billion after an expensive courtship of the Bancroft family that allowed Murdoch to seize the U.S. newspaper he prized, The Wall Street Journal.

"They overpaid, and it was a bad use of shareholder capital," said Morningstar analyst Michael Corty.