James Murdoch this week resigned as British Sky Broadcasting Group Plc (BSY) chairman to move the company out of the limelight of a phone-hacking scandal that has engulfed News Corp. (NWSA:US)’s other U.K. businesses. Two days later, the pay-TV operator said it hacked into e-mails for stories.
BSkyB shares fell to the lowest level in seven months yesterday as analysts say the revelations make it less likely that News Corp. will revive its bid for full control of the broadcaster. News Corp.’s admission that journalists at its U.K. newspapers illegally accessed voice mails and paid police for stories has prompted regulators to probe whether the New York-based company and its deputy Chief Operating Officer James Murdoch are fit to hold a broadcasting license for BSkyB.
“Before now, Sky was always felt to be distanced from phone or e-mail hacking,” said Alex de Groote, an analyst at Panmure Gordon & Co. in London. The timing with the Murdoch resignation is “eerily coincidental,” he said.
BSkyB said yesterday executives at its Sky News channel cleared a reporter to access e-mails as part of his investigations into criminal activity, including the 2008 case of a British couple who faked the husband’s death in a canoe accident to collect life and mortgage insurance. Sky News said the hacking of e-mails was in the public interest.
“The announcement adds to concerns over whether News Corp. will be found to be fit and proper, making a renewed bid for BSkyB, in our view, unlikely,” said Claudio Aspesi, an analyst at Sanford C. Bernstein. “Greater scrutiny is also likely to distract management at an important time.”
U.K. lawmakers are preparing a report on the phone-hacking scandal following testimony James Murdoch gave that has been contradicted by former subordinates. The committee began its inquiry in July after the son of News Corp. Chief Executive Officer Rupert Murdoch said lawmakers had been misled about the extent of phone hacking during a previous probe in 2009. It has questioned him twice for the new report.
Media regulator Ofcom said it will take parliament’s report into consideration when evaluating whether News Corp. should have a broadcast license on behalf of BSkyB.
“I am aware that my role as chairman could become a lightning rod for BSkyB and I believe that my resignation will help to ensure that there is no false conflation with events at a separate organization,” James Murdoch said this week.
A News Corp. spokeswoman and a spokesman for Ofcom declined to comment.
The younger Murdoch’s departure as chairman of BSkyB, the company he once ran and built into one of News Corp.’s most profitable (NWSA:US) businesses, is the biggest sacrifice he has made since the phone-hacking revelations last year.
The scandal also prompted News Corp. to drop its 7.8 billion-pound ($12.3 billion) bid for the 61 percent of BSkyB it doesn’t already own and to close its most popular title, the News of the World.
James Murdoch in 2007 was put in charge of the company’s operations (NWSA:US) throughout Europe and Asia, a portfolio that includes digital television distribution and newspapers. In that role, he also oversaw the company’s U.K. publishing business which later became the focus of the hacking allegations.
The scandal has led to the arrest of more than 30 people in three related probes. Police identified more than 800 likely victims of the practice.
BSkyB fell 22.50 pence to 635.50 pence in London trading yesterday, the lowest level August, 2011. The stock has declined 13 percent this year.
Bloomberg LP, the parent of Bloomberg News, competes with News Corp. units in providing financial news and information.
Sky News head John Ryley said the hacking of e-mails was “editorially justified and in the public interest” and that the channel provided the e-mails to police to assist in the couple’s prosecution.
News Corp. shareholders in October lodged a protest vote against Rupert Murdoch and his sons, following an annual meeting at which investors called for governance changes and an end to voting practices that cement the family’s control. James received the highest percentage of votes against his election to the board, at 35 percent.
In November, one third of BSkyB’s independent shareholders voted against Murdoch’s re-election as chairman.
Chris Watson, a media lawyer at CMS Cameron McKenna, said that Sky News’s defense of public interest probably wouldn’t work in a court of law.
“There is no public interest defense to interception of communications that I’m aware of,” he said. “It may answer the accusation that they were wrong to publish, but it doesn’t deal with the more serious charge that it may have been unlawful for them to have obtained the e-mails that way.”
Sky News said yesterday it commissioned an external review of e-mail records at Sky News and an internal audit of payment records. No grounds for concern have been found so far, it said.
Simon Cole, who was the managing editor who approved the hacking at Sky News, is retiring after 17 years. Cole, whose current title is news editor, will leave in the next few weeks and his retirement is unrelated to the hacking announcement, a spokeswoman said. Cole said on his Twitter account that he had been planning to retire for “some time” and that there is “no linkage” to the hacking story.
“This is clearly unhelpful for investors that yet again the focus is on alleged wrongdoings rather than on the fundamentals of the business,” Panmure Gordon’s de Groote said. “It must be bitterly frustrating.”
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