News Corp. (NWSA)’s involvement in the U.K. phone-hacking and bribery scandal has drawn attention from regulators, who are examining the company’s fitness to hold a broadcasting license through its stake in British Sky Broadcasting Group Plc. (BSY)
The scandal, set off when News Corp.’s reporters were found to have hacked into sources’ phones and bribed police for stories, is being scrutinized by a special team, dubbed “Project Apple,” at media regulator Ofcom, according to minutes released under a Freedom of Information Act request published on Ofcom’s website.
Ofcom, which has the ability to revoke a broadcaster’s license, will determine whether the scandal has compromised News Corp.’s ability to manage the U.K.’s biggest pay-TV company. James Murdoch, son of News Corp. Chief Executive Officer Rupert Murdoch, is the chairman of BSkyB and previously oversaw News Corp.’s U.K. publishing unit.
“I would assume his goal is to remain chairman, but if the regulator forces the issue, I would think he’ll step down as opposed to the other option, which is News Corp. selling its shares in BSkyB,” said Alan Gould, an analyst at Evercore Partners (EVR) in New York. Gould rates the shares “overweight” and doesn’t own any.
BSkyB fell as much as 13.5 pence, or 2 percent, to 680.5 pence and traded at 684 pence as of 8:07 a.m. in London. The stock has fallen 6.6 percent this year, valuing the company at 11.7 billion pounds ($18.5 billion). News Corp. added 0.9 percent to $19.61 in New York yesterday.
The phone-hacking scandal prompted News Corp., which owns 39 percent of BSkyB, to drop a 7.8 billion-pound bid to buy the remaining shares last year. News Corp.’s tabloid employees were found to have hacked into the phones of celebrities and politicians and bribed police. The News of the World was shut in July and more than 10 journalists at the company’s Sun tabloid have been arrested, though not charged.
Ofcom has said it’s been monitoring the investigations since July. Jack Horner, a spokesman for News Corp., and BSkyB’s Stephen Gaynor declined to comment.
“In relation to the hacking and corruption allegations, new evidence is still emerging from the various enquiries,” Ofcom said in an e-mail yesterday. “Ofcom is continuing to assess the evidence -- including new and emerging evidence -- that may assist it in discharging these duties.”
The U.K. Parliament is expected to issue a statement critical of James Murdoch’s management of the newspapers, where he claims to have had no knowledge of widespread hacking and bribery practices.
While the younger Murdoch was re-elected chairman of BSkyB in November, he failed to get the support of almost one third of the independent shareholders in a vote. He has stepped away from his duties at News Corp.’s British unit to focus on his new role as deputy chief operating officer at the company’s New York headquarters.
James Murdoch, 39, became CEO of BSkyB in 2003 and left that post in 2007 to run News Corp.’s television, newspaper and digital operations in Europe, Asia and the Middle East. At the time, he was named non-executive chairman of BSkyB.
News Corp. dropped its bid for BSkyB in July amid pressure from politicians including Prime Minister David Cameron and opposition Labour Party leader Ed Miliband, who intensified calls to review the Murdochs’ influence in local media.
In addition to three police investigations and the parliamentary inquiry, Cameron commissioned a judge-led investigation into media ethics headed by Brian Leveson. Leveson and his lawyers have questioned publishers, journalists, police, celebrities and hacking victims and may recommend additional regulations to police media behavior.
“News Corp. executives and non-executive directors have shown themselves completely unable to control what was going on in the paper and make sure the company’s acting within the law,” Chris Bryant, a Labour lawmaker, said in July. “That raises questions about whether they should have any stake in BSkyB.”
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