David Prosser: Investors look forward to change at the top of News Corp

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The Independent Online

Outlook It is easy enough to see exactly what is happening to a company's share price in real time. What will dismay Rupert Murdoch is that as he gave his shambling evidence to Parliament yesterday, the value of News Corp, his empire, rose rather than fell. That tells you everything you need to know about where this scandal is now headed.

The share price rose because Mr Murdoch's inability to show he has a grasp on the operations of this company suggests he cannot continue to head it for much longer – just as, hours previously, News Corp shares in Australia jumped 4 per cent following stories that Mr Murdoch planned to step down. The problem for him now is that investors in News Corp believe it is in their interests for a new chief executive officer, whose name is not Murdoch, should be appointed.

To put that another way, the "Murdoch discount" has never been wider. This is the gap between what News Corp is worth and what it would be worth without Rupert Murdoch. Analysis conducted by Bloomberg, based on estimates of the value of the constituent parts of the business made by investment banks, suggest News Corp would today be valued 50 per cent higher without Rupert Murdoch at the helm.

Other analysts are more conservative, putting the discount at more like a third, but no matter. Investors in News Corp know that similar organisations – groups such as Time Warner and Disney, say – are valued more highly than the business in which they hold shares simply because of governance issues. They would be tens of billions of dollars better off if Mr Murdoch were to step down and the company's governance was overhauled.

Why should that be the case? The problem is that the market believes Mr Murdoch makes decisions that are not always in the best interests of all shareholders – and that these shareholders are powerless to challenge such misjudgements because the Murdoch family controls 39 per cent of News Corp's A shares, the ones that carry voting rights.

The current scandal is an extreme example of why people worry about Mr Murdoch's power and judgement, but there have been no shortage of others. There is a lawsuit outstanding, for example, over how much News Corp paid for Shine, the television production company run by his daughter, Elisabeth. Many investors question his attachment to newspapers, full stop, which seem to cause News Corp so many problems yet deliver such a small part of its profits.

An element of the Murdoch discount is the treatment investors always give conglomerates – the market view is that companies struggle to run disparate assets as well as specialist operators might.

But what stands in the way of a break-up of the News Corp conglomeration? Its chief executive officer is the biggest obstacle to the sale of non-core assets, because he has generally not shown a hard-headed approach towards them.

Given the Murdoch family's stake in the voting shares, a decision from News Corp's founder to relinquish control would only be the start of the process of dragging this company into the 21st century. But what a start it would be: with Mr Murdoch out of the way, activist shareholders would surely find the company much more receptive to governance reforms.

This is now the inevitable consequence of the phone-hacking affair. Mr Murdoch said yesterday that the News of the World was a tiny part of his business – maybe so, but what happened there is now going to see him toppled. Not because the buck stops with him – though of course it should – but because the owners of News Corp now judge that they would be better off without him. And money, in the end, always talks.

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