After more arrests in the police investigation into corrupt behaviour in the British press, News Corp and its UK businesses are caught between an unrelenting flow of news and a sense of limbo.
The second arrest of Rebekah Brooks, a Murdoch family confidante and former head of News International, came days after news that Ofcom had escalated its probe into whether BSkyB was a fit and proper broadcast licence holder.
The developments have heightened investor concerns that the scandal could affect BSkyB, the satellite business of which News Corp holds 39.1 per cent. But the investigations’ outcome may not be known for months and none of those arrested shas been charged, leaving News Corp and BSkyB reluctant to make pre-emptive moves that may prove unnecessary.
About 54 per cent of independent investors supported James Murdoch’s re-election last November as BSkyB’s chairman. The attitude of several shareholders who gave him the benefit of the doubt has since hardened. “An independent chairman [not linked to News Corp] is what’s required in my view,” said one top 10 shareholder, who declined to be named.
Another shareholder said: “The mood is shifting more towards a belief that [Mr Murdoch] should step down as chairman and become a non-executive director.” He added, however, that Nick Ferguson, BSKyB’s senior independent director remained “resolute that there should be no change”.
“Shareholders have made clear to the BSkyB board that the company would benefit from a new chairman. They will do the same again over the next few weeks. Perhaps the next step will be to demand Nick Ferguson goes,” the shareholder said.
A third investor said Mr Murdoch’s position looked “increasingly untenable”, adding: “Even his cheerleaders are having doubts. It looks as if the sand on which he is standing is being washed away”.
Mr Ferguson and other directors backed Mr Murdoch unanimously in November, and will “hold fast” unless investigations challenge his version of events, one person familiar with their position said. A person close to the board added: “While the board continues to listen to all shareholders at all times, its decision to back James Murdoch was supported by a majority of independent shareholders.”
The board will pay particular attention to a report expected soon from the House of Commons media committee and may have to change its stance if Mr Murdoch is severely criticised. If Ofcom, the media regulator, were to judge that he was not a “fit and proper person” to lead the company, or even that News Corp was not a fit controlling shareholder, directors would have little choice but to change chairman.
Claudio Aspesi of Bernstein Research said: “The Sky board has to make a determination on whether to create a sharper separation between the company and News Corp by changing the chairman. That is fundamentally the next question coming up for both News Corp and independent board members.”
The bigger risk to investors, he noted, would come if News Corp were forced to cut its holding to satisfy Ofcom that it no longer controls BSkyB. The challenge of selling a large stake would create “a terrible overhang on the stock.”
Thomas Singlehurst, media analyst at Citigroup, said the chances of News Corp being forced to sell any its stake in BSkyB looked “relatively low” because they could ringfence the holding.
Mr Murdoch could be replaced with another News Corp representative, he added, but there would “soft benefits” to other shareholders from having an independent chairman who could be seen as a stronger defender of non-News Corp shareholders’ interests, Mr Singlehurst said.
Analysts believe that Mr Ferguson would be a candidate to replace Mr Murdoch as chairman, but one banker questioned whether News Corp would allow a non-News Corp chairman.
Chase Carey, News Corp’s chief operating officer, and Tom Mockridge, now running News International, have strong track records running satellite television groups in the US and Italy respectively and could be candidates.
Two bankers doubted that Ofcom would force News Corp to sell its BSkyB stake, adding that News Corp would contest any negative ruling as it had when regulators challenged the stake BSkyB took in ITV. “They are not going to go without a fight,” one said.
Mr Carey has given little away about News Corp’s options after its bid for all of BSkyB collapsed last summer but News Corp seems highly unlikely to sacrifice Mr Murdoch at BSkyB pre-emptively, not least because past sacrifices such as closing the News of the World have done little to stop the scandal spreading.
Rupert Murdoch told staff at The Sun by email last week that an internal investigation into the tabloid by News Corp’s management and standards committee was “substantially complete”. Sun staff had reacted angrily last month to news that the MSC passed information to the police leading to an earlier series of arrests.