Hacking scandal:

Rupert on the run: News Corp's UK future in doubt as MPs turn on Murdoch

 

The prospect of Rupert Murdoch abandoning his British media interests became a real possibility last night as News Corp dropped plans to take control of BSkyB and it emerged that the media mogul has discussed selling his News International newspaper titles.

Click HERE to view graphic (193k jpg)

The decision to withdraw the £8bn bid for BSkyB came ahead of a House of Commons vote on a motion, backed by the leaders of all three main political parties, to block the News Corp deal. But even News Corp's current 39 per cent stake in the satellite broadcaster is now at risk from a "fit and proper" test being conducted by the media regulator, Ofcom.

The likelihood that News Corp could exit from the British newspaper market increased significantly yesterday as The Wall Street Journal, the most prestigious press title in Mr Murdoch's global portfolio, reported that the option of selling the British papers was being considered by the company in an effort to "stem the fallout" from the phone-hacking scandal.

The Wall Street Journal said News Corp, which last week closed the News of the World as part of its attempts to limit the damage to its corporate reputation, had "explored whether there were any potential buyers" for the remaining three titles, The Sun, The Times and The Sunday Times. Another option could be to spin off News International as a separate company under new management.

The investment bank Nomura told investors yesterday: "Perhaps this rebuke will force News Corp to reconsider its ownership of UK newspapers. We hope this is a turning point for the company's strategy and asset allocation [regarding] the ownership of highly inconsequential newspapers."

The crisis at News International grew yesterday with the sudden departure of Tom Crone, who has been legal manager for The Sun and the NOTW for the past 26 years.

Mr Crone had advised James Murdoch, Rupert Murdoch's son and News Corp's chairman and chief executive in Europe and Asia, on making secret damages payments to phone-hacking victims and had given evidence to MPs, saying he had no knowledge that the illegal activities went beyond the actions of a single reporter and a private investigator. Last night, a source close to Mr Crone said he had "a clear conscience". Significantly, the source said he had never been privy to emails that, in 2009, the company said showed no evidence of wrongdoing. Last week it emerged they contained details of payments to police officers by the paper.

Yesterday Chase Carey, Rupert Murdoch's No 2, made a diversion from a trip to Germany and flew into London to try to limit the damage being caused to News Corp's international reputation. He, alongside the Murdochs, took the decision to abandon the BSkyB bid.

Mr Carey, who is seen as an alternative to James as successor to the 80-year-old chairman and chief executive, is known to have comparatively little interest in the newspaper business, which contributes a small fraction of News Corp's total revenues.

News Corp's displeasure with the way that the British political establishment has turned against it was shown by the comment that it would be spending the money that had been put aside for the BSkyB bid in other markets.

In a statement, Mr Carey said: "We believed that the proposed acquisition of BSkyB by News Corporation would benefit both companies, but it has become clear that it is too difficult to progress in this climate." News Corp said it remained a "committed long-term shareholder" in BSkyB.

But Ofcom stressed yesterday that its inquiry into whether the company was fit and proper to have a broadcasting licence in Britain continued as before. If News Corp were to fail that test it would not be permitted to have any stake in BSkyB. The test is applied to the "relevant conduct" of a licence holder and failure is not dependent on a criminal conviction. On Tuesday, one of the authorities from which Ofcom will be taking evidence, the Home Affairs Select Committee, heard from the former Scotland Yard deputy assistant commissioner, Peter Clarke, who said of News Corp: "This is a major global organisation with access to the best legal advice in my view deliberately trying to thwart a police investigation."

David Cameron yesterday set out the powers of an inquiry into phone hacking that will be led by Lord Justice Leveson. Mr Cameron said that those found to have sanctioned wrongdoing should have no further role in running a media company in the UK, adding that Rupert Murdoch should be among those questioned by the inquiry.

Pressure on News Corp is also growing in the United States, where four Senators called for a high-level investigation into the company's alleged activities in Britain. The Department of Justice and the Securities and Exchange Commission are being asked to investigate News Corp under the Foreign Corrupt Practices Act. Democratic Senator Frank Lautenberg wrote to the US Attorney General Eric Holder to express his concerns over News Corp paying British police. "The limited information already reported in this case raises serious questions about the legality of the conduct of News Corp and its subsidiaries under the [Foreign Corrupt Practices Act]," Mr Lautenberg wrote.

"Further investigation may reveal that current reports only scratch the surface of the problem at News Corp. Accordingly, I am requesting that DOJ and the SEC examine these circumstances and determine whether US laws have been violated."

Concern was also expressed by the Bancroft family, which sold The Wall Street Journal to Mr Murdoch in 2008. "If I had known what I know now, I would have pushed harder against" the Murdoch bid, Christopher Bancroft said, adding that the breadth of allegations "would have been more problematic for me. I probably would have held out".

News Corp last night refused to comment on the possible sale of the News International titles. "It's a fluid and fast-moving situation," one source said. "There's lots of speculation about lots of things we might do."

Q&A

Why has the bid been dropped?

The growing evidence of sleazy behaviour by News International (NI) – most egregiously the hacking of Milly Dowler's phone – meant the Coalition could not anger the public by waving through the bid. All main political parties had been poised to vote against the takeover, a Commons defeat would have sent an unmistakable message to the chief executive and chairman of its US parent News Corp, Rupert Murdoch. He was forced to back down. He left the announcement to News Corp's chief operating officer, Chase Carey, who explained: "We believed that the proposed acquisition of BSkyB by News Corporation would benefit both companies but it has become clear that it is too difficult to progress in this climate."

Why did Mr Murdoch want all of BSkyB?

News Corp owns 39 per cent of BSkyB. Full ownership would have given it full control of Britain's biggest commercial broadcaster and its fast-growing revenues. After a slow start in the early 1990s, BSkyB has become a gold mine. Its revenue jumped 10 per cent to £5.9bn last year – and is likely to increase sharply in the future with the development of interactive digital shopping and entertainment. Full ownership would effectively hand News Corp the commercial TV market in the world's sixth largest economy. With full ownership, the company would be able to cross-sell its UK newspapers to 10 million subscribers.

So will News Corp be able to come back with another bid?

Yes. Theoretically, News Corp could launch a new bid at any time. In practice it will have to wait for the phone-hacking scandal to subside, but a new bid is conceivable: Mr Murdoch is a wily and determined operator who has bounced back from adversity time and again during his 58-year career in the media.

What is the long-term impact of this decision?

News Corp said it would remain a "committed long-term shareholder" in BSkyB. Ofcom, however, has indicated it may consider whether News Corp is "fit and proper" to hold any stake in BSkyB. The regulator has asked for evidence about the apparently widespread wrongdoing at its UK newspaper from the Metropolitan Police, the Independent Police Complaints Commission and two Parliamentary committees. News Corp may wish to sell off its troublesome British newspapers. Once The Sun and the News of the World grew cash. Now NI, which owns The Sun, The Times and Sunday Times, is stumbling in the digital age. Only The Sun is thought to be profitable and NI recorded a loss of £73.3m in the year to June 2010, compared with a £31m profit the previous year. Mr Murdoch's love of newspapers is unlikely to dim, but ink does not run in the blood of his son and heir, James Murdoch, nor in that of Mr Carey and many News Corp investors and directors.

Martin Hickman and Cahal Milmo

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