Murdoch links set to overshadow Sky results

Murdoch links set to overshadow Sky results

Stock Market Predictions

LONDON (Global Markets) - BSkyB's complicated relationship with Rupert Murdoch's News Corp and whether son James should remain as chairman will likely dominate the firm's solid financial results due next week.

Investors who saw their shares fall over 20 percent at one point this month after a phone-hacking scandal scuppered News Corp's BSkyB takeover bid, will want to see some indication of a future return of capital to boost the value of the company.

However, a buyback of shares or special dividend would draw attention to News Corp's near 40 percent ownership of the British pay-TV operator at a time when a criminal scandal has engulfed Murdoch's empire and hammered the family reputation.

"It will be a tough decision for the board," said Panmure Gordon's Alex DeGroote, one of the first financial analysts to stress the increasing chances that the bid would fall apart.

"At a time when BSkyB should be hypersensitive about the links to News Corp, both a special dividend and the chairman's position are pertinent."

The 38-year-old James Murdoch took over as non-executive chairman of BSkyB in late 2007 after a highly successful four years as the company's chief executive, transforming the group from a pure-play TV operator to one that also offered broadband and telephony.

Several shareholders have told Global Markets they are supportive of James as chairman but will want to discuss the situation.

"Our focus is how BSkyB moves forward," a top 20 BSkyB shareholder told Global Markets on condition of anonymity. "We've got this on a watching brief, because if something dramatic happens then we'll need to have conversations with them.

"We're not pushing for anything as far as James Murdoch going or anything like that, but it will be a topic of conversation when we do talk to them. Our concern will be to make sure the business is structured sufficiently well to drive it through to make sure the perceived valuation and forthcoming revenues that we anticipate are protected."

HEAVY LIFTING

BSkyB has performed strongly during the financial downturn, growing its customer base to over 10 million homes, and is set for a period of strong cash generation after James Murdoch led it through a heavy period of investment.

With the withdrawal of the News Corp bid for the 61 percent of BSkyB it did not already own, shareholders will want to see what will happen next with that cash.

"Cash distribution is likely to be a contentious issue as Sky nears zero net debt next year," Jefferies analyst Nick Bell said, adding that by gearing up to two times from the current 0.6 times net debt to core earnings could release 2.1 billion pounds.

"Under normal circumstances News Corp would be expected to block such a move (it is already flush with cash and any distribution is likely to a incur a substantial tax charge), but circumstances are far from normal at the moment.

"It may relent in order to assuage criticism of wielding too much control at Sky and also to help secure James Murdoch's position as chairman."

James was deemed to have given a good performance when he appeared before a high-profile British parliamentary committee this week to answer questions on the hacking scandal, but he has since come under renewed pressure after former staff at the tabloid at the heart of the problem contradicted a critical part of his testimony.

Merrill Lynch said it thought the company would opt for a special dividend instead of a buyback, as this would prevent News Corp from increasing its stake, but Panmure's DeGroote said he did not expect a firm commitment to be announced next week.

"I don't think it's in the company's interests to undertake share buybacks or a special dividend at this moment in time," he said. "There's the News Corp linkage but also I'm not convinced of the merit of injecting high levels of leverage at a time in which the earnings appear to be under modest pressure."

Others are hoping for at least some indication of a future payout, and expectations on the size of that sum have grown in recent days.

BSkyB is expected to post solid results Friday, but with subscriber growth slowing as the company focuses on cross selling products to existing customers rather than adding new ones in a tough consumer environment.

(Reporting by Kate Holton; additional reporting by Chris Vellacott; Editing by Chris Wickham and Will Waterman)

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Murdoch and sons survive News Corp annual meeting

Murdoch and sons survive News Corp annual meeting

Stock Market Predictions

LOS ANGELES (Global Markets) - Using contentious barbs and comedic relief, Rupert Murdoch deflected attempts by angry investors to remove him as chairman of his News Corp empire at the company's annual meeting on Friday.

The 80-year-old media baron survived what was effectively a no-confidence vote and also managed to get his sons James and Lachlan reelected as directors.

The octogenarian began the meeting with perfunctory comments about being personally determined to right News Corp's wrongs, saying it must be an ethical company and that it had been subject to fair criticism and unfair attack. But that was as conciliatory as he got.

Unlike his sons Lachlan and James, who sat quietly during the 75-minute meeting, Murdoch stood defiant in the face of tough questioning about News Corp's corporate governance, a proposal to strip him of the long-held chairman role that goes along with his CEO title, and fresh allegations of computer hacking that piggyback off the phone hacking charges responsible for putting Murdoch in his precarious position.

In addition to the roughly 150 people inside the Zanuck Theater on the Fox Studios lot in Hollywood, about 100 others stood outside, voicing opposition to the company and carrying signs that read, "Murdoch isn't above the law" and "Big Media, Big Money, Get Out."

Murdoch was feistier than he had been during questioning by a special committee of Parliament in July.

British member of parliament Tom Watson, Australian pension fund representative Stephen Mayne and Julie Tanner of the Christian Brothers Investment Service were among those who sparred with Murdoch. Mayne, a longtime News Corp antagonist, and Murdoch, who employed his familiar tactic of pounding the table to stress a point, circled each other like familiar opponents.

"It is time to get on the governance high road. You've been treating us like mushrooms," said Mayne, who has attended more than a decade's worth of these meetings.

Later, in response to Mayne's comment that he was not sure how he planned to vote his shares, Murdoch shot back, "I hate to call you a liar, but I don't believe you. I know how you're going to vote."

FIREWORKS

The real fireworks were supplied by Watson, who flew to Los Angeles to attend the meeting as the representative of 1,669 shares of nonvoting stock held by labor group AFL-CIO. At his first opportunity to speak, Watson noted the "deep irony" of News Corp using images of Prince William and Kate Middleton during its presentation since both were alleged phone hacking victims.

He said News Corp could face new investigations in the UK by the country's Serious Organised Crime Agency, stemming from the actions of at least three private investigators employed by News International, News Corp's UK newspaper publishing unit. Murdoch has failed to warn shareholders of the possibility of new civil lawsuits, Watson said.

"I promise you absolutely that we will stop at nothing to get to the bottom of this," Murdoch said in response to Watson.

Despite the animosity between the two, Murdoch jokingly defended News Corp's democratic voting process by pointing out that its Fox Business channel had featured Watson earlier in the day.

"We're fair and balanced," he said, referencing to the company's familiar slogan.

After the meeting, Watson told reporters that he was pleased to have had the opportunity to bring the issues to the attention of investors, even if board members "didn't choose to acknowledge the points I made."

"I made my serious points ... the board can choose to ignore me if they like," he said.

Watson said he was sure the issues brought up during the meeting would be put to James Murdoch when he returns to Parliament for more questioning next month.

CROWD SUPPORT

Murdoch had some supporters in the crowd, among them Haim Saban, the billionaire creator of the "Teenage Mutant Ninja Turtles" franchise. Saban said he was shocked at investors' focus on corporate governance and said they should instead be looking at News Corp's strong operating performance. He also asked Murdoch if he had plans to revisit the abandoned $12 billion BSkyB deal.

In the wake of the phone hacking scandal, a group called Avaaz campaigned against News Corp's bid to take full control of UK satellite operator BSkyB.

Murdoch said the company does not have plans to put the deal back on the table, but added "never say never, though."

Another independent investor thanked Murdoch for creating "thousands of jobs across the world."

Since Murdoch controls 40 percent of News Corp's voting B shares and is supported by the next largest holder, Saudi Prince Alwaleed bin Talal, there was little chance that Murdoch, his sons James and Lachlan or any other long-time serving director would have been voted off the board.

Shareholders reelected the media conglomerate's board of directors on Friday and failed to approve a proposal to oust Murdoch from his chairman post.

News Corp did not disclose the specific results, including how many investors withheld their shares from voting or how many voted against the directors, saying in a press statement that the company would file the numbers with the U.S. Securities and Exchange Commission early next week.

News Corp board chairman Viet Dinh took pains to defend the company's dual class stock structure by pointing out that Comcast, Warren Buffett's Berkshire Hathaway and others feature the same structure. He also noted that shareholders voted to approve the structure as recently as 2007. Dave Devoe, News Corp's chief financial officer, pointed out that the company has not bought a single Class B share with the $1.6 billion it has spent on stock buybacks.

News Corp shares closed up 2 percent to $17.20 on the Nasdaq on Friday.

"The News Corp recovery in line with the market at the close would indicate that the Street approves of this status quo," said Collins Stewart analyst Thomas Eagan.

Separately on Friday, News International, the News Corp division that housed the News of the World newspaper at the center of the phone hacking scandal, said it would pay the family of murdered British schoolgirl Milly Dowler 2 million pounds (US$3.17 million). Murdoch will personally donate another million pounds to charities chosen by the Dowler family.

Dowler was abducted in 2002 and found murdered six months later. News this year that the tabloid had hacked into her phone after she disappeared caused widespread revulsion in Britain and elevated the hacking to a national scandal.

Among the many concerns for Murdoch aides is the possibility of further reputation damage and embarrassment.

Former News Corp executive Les Hinton, who resigned this summer, is due to reappear before Parliament for additional questioning on Monday.

(Reporting by Lisa Richwine in Los Angeles and Yinka Adegoke in New York. Writing by Peter Lauria. Editing by Robert MacMillan)

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BSkyB shares slump as doubts grow over Murdoch deal

BSkyB shares slump as doubts grow over Murdoch deal

Stock Market Predictions

LONDON (Global Markets) - Shares in Rupert Murdoch's bid-target BSkyB (BSY.L) slumped on Friday as the phone hacking scandal engulfing the media mogul's empire pushed the controversial deal into uncharted waters.

Shares in BSkyB dropped suddenly on Friday, by almost 6 percent, when the government said it would take into consideration the closure of the tabloid at the heart of the hacking scandal and the impact this would have on media plurality, or "media voices."

"One thing that investors don't like is uncertainty," a senior competition lawyer involved in the deal told Global Markets.

"It's all very unpredictable and we're outside the realm now of legal process. Clearly the law is still the law and everyone should remember that but it's hard to predict what will happen now because the situation is changing on an hourly basis."

Shares in the U.S.-listed News Corp were down 4.4 percent in early trading as investors there weighed the changing landscape for the deal.

Buffeted by a series of accusations over the conduct of his journalists, Murdoch is now under even more pressure as he fights to secure his $14 billion bid to buy out the 61 percent of the successful pay-TV group he does not already own.

Analysts and competition lawyers say the government has little room to maneuver over the deal as News Corp has already agreed to a string of undertakings to protect media plurality -- the grounds on which the government can examine it.

However it is likely to push its final decision back by some months in a bid to let the crisis die down. It could also ask for even more undertakings.

After the sudden closure of Britain's biggest-selling Sunday newspaper, the government warned that its final decision could "take some time" as it assesses the change in the market.

It has also received over 160,000 submissions to a final consultation on the deal which will need to be processed, while the deputy leader of Britain's Liberal Democrat ruling coalition party said he would challenge the fitness of News Corp to hold a broadcasting license.

"The Secretary of State ... 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 media department said in a statement.

Peel Hunt analyst Patrick Yau said he still believed the deal would go through but that uncertainty was growing.

"I don't think this deal is dead," he told Global Markets.

"We've seen the share price come off as people are nervous but if you think about where the stock price came from before the bid, at 570 pence, there's a long way between where we are now and that level."

FREE FALL

Shares in BSkyB have lost 10 percent this week, slumping to a more than four month low to below 770 pence from around 850 pence on Monday. Trading volumes on Friday were at more than seven times the 90-day daily average.

Two special situations analysts attributed the fall in the BSkyB share price to forced selling by hedge funds.

"The stock has fallen to a level where people have to get out, it's a technical and not a fundamental thing," said one of the analysts. "I personally don't think that Murdoch will walk away from the deal," he said, adding that the cash flow BSkyB has is too important for News Corp.

The British government has always said the phone hacking scandal and BSkyB takeover are not linked from a legal standpoint but it will be loath to approve the deal at a time when politicians from all sides are taking to the parliament floor to denounce Murdoch and his company.

"My reading is that the government is trying to find a way to pull back from making a decision," the competition lawyer said. "It's under so much pressure. But they're exposed by the process, they can't change the scope of the review."

Panmure Gordon analyst Alex DeGroote warned that the speed at which events were unfolding meant investors were "into totally uncharted territory."

He cut his price target on BSkyB shares to 730 pence from 750 pence on what he judged to be a higher risk that the proposed deal would collapse.

Prime Minister David Cameron, himself under fire for being too close to News Corp executives, again stressed that the government would follow proper legal procedures.

Competition lawyer Simon Holmes from SJ Berwin said the government was being very careful to argue the two cases were not linked.

"I think the decision will be pushed back but I wouldn't say forever," he told Global Markets. "The government will want to move on. I think we will get a decision on BSkyB in a couple of months.

"If it was left to fester then the reason for the delay could be challenged."

(Additional reporting by Paul Sandle and Georgina Prodhan; editing by Sophie Walker and Chris Wickham)

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