News Corp. (NWSA:US)’s board pledged its support for Chairman Rupert Murdoch as a U.S. senator sought evidence about the phone-hacking scandal that led U.K. lawmakers to say the media magnate wasn’t suited to run the company.
The board expressed “full confidence in Rupert Murdoch’s fitness” to lead the company, the directors said in a statement after meeting yesterday. Hours later, U.S. Senator Jay Rockefeller, a West Virginia Democrat, released a letter sent to a U.K. media-ethics inquiry seeking whether there was information indicating American citizens had their voice mail intercepted.
The U.K. House of Commons Culture Committee in a May 1 vote said that Murdoch was “not a fit person” to lead a major international company after News Corp.’s British unit misled Parliament about the extent of phone hacking at its News of the World tabloid. Rockefeller’s letter to the media-ethics inquiry triggered by the scandal said he had been following the U.K. proceedings with “great interest.”
“The newspapers’ employees and agents not only appear to have illegally intercepted private telephone communications; there is also evidence that they improperly made large cash payments to police officers,” the senator wrote. “I would like to know whether News International or any other News Corporation business used hacking, bribing or other similar tactics when operating in the United States.”
Rockefeller, chairman of the Senate Committee on Commerce, Science and Transportation, raised similar questions in July as news of the scandal spread. Murdoch told the media inquiry last week that the company has cooperated with civil and criminal probes, turning over information about possible illegal activity to London police and the U.S. Department of Justice.
John Toker, a spokesman for the inquiry into press ethics, said Judge Brian Leveson had received the letter and declined to comment further.
Murdoch “turned a blind eye and exhibited willful blindness to what was going on in his companies,” the committee said in the report that was split along political lines. “This culture, we consider, permeated from the top throughout the organization and speaks volumes about the lack of effective corporate governance at News Corp.”
News Corp.’ board, in response to U.K. lawmakers, said they backed Murdoch’s “vision and leadership” and his ongoing role at the company.
The 81-year-old Murdoch also received support from high- profile friends including Donald Trump, Barry Diller and Jacob Rothschild, an investment banker who helped Murdoch buy the now- defunct News of the World tabloid more than 40 years ago.
“We shouldn’t forget that he made a unique contribution to media in this country,” said Rothschild, a British baron who served on the board of News Corp.’s British Sky Broadcasting Group Plc. (BSY) satellite-TV business. Murdoch saved the U.K. newspaper industry and was a pioneer of pay-television in the country, said Rothschild, the co-founder and chairman of J Rothschild Capital Management.
The U.K. parliamentary report may increase the likelihood that media regulator Ofcom concludes News Corp. is unfit to hold a broadcasting license and asks the company to reduce its 39 percent stake in BSkyB. The phone-hacking scandal prompted News Corp. to abandon a 7.8 billion-pound ($12.6 billion) bid for the rest of BSkyB, the U.K.’s biggest pay-television provider, last year.
Moody’s Investors Service Inc. said yesterday that News Corp.’s ratings wouldn’t be affected by the parliamentary panel’s report. The company’s “significant cash balance and strong free cash flow generation mitigates the uncertainty of additional financial fallout from the phone hacking scandal,” the credit-rating company said in a statement. News Corp. had $9.4 billion in cash and equivalents at the end of last year.
Since BSkyB isn’t consolidated into News Corp.’s financial results (NWSA:US), a potential sale wouldn’t affect the company’s profile, Moody’s said.
“However, we view the asset as a core operation and an important source of financial flexibility for News Corp.,” the firm said. “We believe the company will have the ability to maintain such flexibility whether it is forced to become a passive investor by giving up its seats on BSkyB’s board or to sell its investment altogether, in which case it would receive significant after-tax cash proceeds.”
News Corp. shares (NWSA:US) climbed less than 1 percent to $19.89 yesterday in New York. The stock is up 11 percent this year.
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