(Updates with testimony starting in third paragraph. For more coverage of News Corp., see EXT3 <GO>. To watch the Murdoch testimony before Parliament, LIVE <GO>)
July 19 (Bloomberg) -- News Corp. is considering elevating Chief Operating Officer Chase Carey to chief executive officer to succeed Rupert Murdoch, people with knowledge of the situation said.
A decision hasn’t been made and a move depends in part on Murdoch’s performance today before the U.K. Parliament, the people, who weren’t authorized to speak publicly, said yesterday. Murdoch would remain chairman, the people said.
Murdoch and his son James appeared today to discuss the company’s role in the alleged phone hacking of murder victims, members of the royal family and others by the News of the World, which was closed on July 10. The 80-year-old executive said he wasn’t considering resigning. He said he wasn’t responsible for the hacking scandal and that the blame lies with “the people I trusted to run it.”
“The News of the World is less than 1 percent of our company,” Murdoch told Parliament’s Culture, Media and Sport Committee. He said that he may have “lost sight” of the newspaper because it was “so small in the general frame of the company.”
News Corp. executives who watched Murdoch rehearse for his appearance had concerns about how he handled questions, according to three people, who weren’t authorized to speak publicly.
“Who would have thought this could happen two weeks ago?” Laura Martin, an analyst with Needham & Co. in Pasadena, California, said before the hearing. “He spent 60 years building something and we are watching his legacy being ripped apart day by day.”
News Corp. rose 72 cents, or 4.8 percent, to $15.68 at 2:02 p.m. New York time in Nasdaq Stock Market trading, paring the decline since July 4, when the Guardian newspaper reported that the News of the World hacked into the voicemail of a murdered teenager, Milly Dowler. Before today, the Class A shares had dropped 17 percent since July 1.
A change to Carey, 57, as CEO would “likely be applauded,” Barton Crockett, an analyst at Lazard Capital Markets in New York, said in a research note today.
Standard & Poor’s said yesterday it may lower New York- based News Corp.’s BBB+ corporate debt rating because of “business and reputation risks” created by the phone-hacking scandal.
Independent directors yesterday weighed naming Carey CEO, according to a person close to the board. The directors, who didn’t make a decision, discussed whether the stock market and investors would react favorably to a change, the person said.
There was no meeting yesterday to elevate Carey, said a senior News Corp. executive who sought anonymity because the matter is private. Existing succession plans get re-evaluated from time to time, and any suggestion they have been accelerated or implemented is unfounded, the person said.
Murdoch has the board’s support, Thomas Perkins, one of the independent directors, told the Associated Press. He said the board isn’t considering elevating Carey.
Board members and executives at News Corp. are concerned about Murdoch’s ability to contain the fallout from the hacking scandal, the people familiar with the matter said. The company closed the 168-year-old News of the World this month and abandoned its bid for British Sky Broadcasting Plc.
News Corp.’s top publishing executive in the U.K., Rebekah Brooks, resigned last week and was arrested on July 17. She also gave evidence to Parliament today.
The scandal has touched high-level politicians and police officials in Britain. Metropolitan Police Commissioner Paul Stephenson and Assistant Commissioner John Yates resigned and are under investigation over their roles in the scandal by the Independent Police Complaints Commission. Prime Minister David Cameron cut short a trip to Africa to prepare for a statement to Parliament tomorrow.
A shift in leadership would end Murdoch’s almost six-decade run as CEO of a company that began with a newspaper in Australia and evolved into a media empire that controls Fox television and movie assets, HarperCollins Publishers, and newspapers including the Times of London, The Sun and the Wall Street Journal.
Murdoch’s voting power suggests he can influence any board decision about his role and would retain clout even if there were a leadership change.
“Rupert Murdoch controls the votes of the company through the Class B shares,” Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, said this week in an interview. “He can just replace them if he wants. They may do something, but it will be temporary. Maybe he becomes chairman, but this is still his company and he can do what he wants. When he controls the stock, he controls the board.”
Through a family trust, the Murdochs own 306.6 million shares, or 38.4 percent, of News Corp.’s Class B voting stock, according to the company’s proxy statement. Including other family holdings, Rupert Murdoch controls 39.7 percent of the voting power, giving him effective control, filings show.
The value of the family’s holdings has declined more than $700 million since the scandal erupted, according to Bloomberg data.
Independent directors must protect shareholders and act in their best interest, said Needham’s Martin, who recommends buying News Corp. shares. Considering succession issues at this moment is “justifiable,” she said.
By installing Carey as CEO, News Corp. would be relying on a trusted Murdoch deputy to help get past the hacking scandal.
Carey worked for 15 years as a senior News Corp. executive before becoming CEO of DirecTV in 2003. He returned in 2009 following the resignation of Peter Chernin as Murdoch’s No. 2.
News Corp.’s independent directors, who hold nine of 16 board seats, have expressed frustration over the quality and quantity of information they’ve received about the scandal and concern about management’s ability to handle the crisis given how slowly the company has responded, a person with knowledge of the situation said earlier.
According to News Corp.’s proxy filing, independent board member Roderick Eddington, the former CEO of British Airways, is the company’s lead director. He has the responsibility to call meetings of the non-executive directors or independent directors and to serve as a liaison between the chairman and the independent board members.
In his first stint at News Corp., Carey served as co-chief operating officer and as an aide to Murdoch for about six years, helping Fox acquire rights to the National Football League, National Hockey League and Major League Baseball.
Carey, who played on the Harvard Business School rugby team while studying for his MBA, led News Corp.’s efforts this year to generate fees from its Fox broadcast affiliates, pressuring them to share more of the so-called retransmission fees that local stations get from cable and satellite operators.
Bloomberg LP, the parent of Bloomberg News, competes with News Corp. units in providing financial news and information.
--With assistance from Robert Fenner in Melbourne, Anthony Palazzo in Los Angeles and Linda Sandler in New York. Editors: Anthony Palazzo, Rob Golum
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