Church of England bails out of its stake in News Corporation

The size of the shareholding is tiny but the move is hugely embarrassing

Rupert Murdoch's News Corporation was dealt an embarrassing blow yesterday as the Church of England sold its entire stake in the firm in the wake of the phone-hacking scandal.

The church is selling its £1.9m shareholding because it was not convinced that News Corp had sufficiently reformed in response to the scandal.

The decision comes after a year of negotiations between News Corp executives and the Church's Ethical Investment Advisory Group, which has been reacting to "serious concerns" among the church's investing bodies over the revelations emerging from the company's British newspapers business, News International.

The size of the Church's shareholding is tiny in a global enterprise with a market capitalisation of more than $57bn (£37bn).

But the move is hugely embarrassing for News Corp as it brackets the media empire alongside Vedanta Resources, the controversial Indian miner, which the Church sold out of in 2010 amid concerns over its human rights record.

The Church said it had previously sold out of companies "involved in military products and services, pornography, alcoholic drinks, gambling, tobacco, human embryonic cloning and high interest rate lending".

Andrew Brown, secretary of the Church Commissioners, said: "Last year's phone-hacking allegations raised some serious concerns amongst the Church's investing bodies about our holding in News Corporation.

"Our decision to disinvest was not one taken lightly and follows a year of continuous dialogue with the company, during which the EIAG put forward a number of recommendations around how corporate governance structures at News Corporation could be improved.

"However, the EIAG does not feel that the company has brought about sufficient change and we have accepted its advice to disinvest."

But the sale also threatens to overshadow surging profits this year as well as a 50 per cent rise in the News Corp share price. After a 47 per cent rise in profits to £600m in the three months to March, the firm is due to announce its latest quarterly results today.

October's shareholder meeting in Los Angeles will see Mr Murdoch under pressure from dissident investors to reduce his dominant role at the top of the company.

Two of News Corp's non-executive directors, Sir Rod Eddington, the company's senior independent director, and Andrew Knight, a former chairman of News International, recently held talks with representatives of the powerful British Local Authority Pension Fund Forum, which has backed a resolution calling for Mr Murdoch to relinquish his position as chairman and chief executive of News Corp.