Fri, May 04, 2012 - Page 9 News List

Sky no longer the limit for Murdoch’s scandal-hit empire

The phone-hacking scandal in Britain and the fallout from it are starting to take a toll on News Corp’s global operations, with an insider saying that the beleaguered firm is now persona non grata when it comes to takeover deals

By Amy Chozick  /  NY Times News Service, NEW YORK

Illustration: Mountain People

In the months after a phone-hacking scandal erupted in Britain last summer, Rupert Murdoch told people within News Corp that he wanted to revisit his media company’s discontinued US$12 billion bid for pay television service BskyB.

News Corp chairman Murdoch still viewed the acquisition of the 60 percent of BSkyB not already owned by the company as a strategically important investment. The TV company, which posted an operating profit of more than US$1.7 billion last year, would have provided a steady revenue stream for his company.

Pressure was put on News Corp, mostly by investment bankers specializing in the media sector, who suggested that the best way to win government approval for the deal would be to sell or spin off the embattled British newspaper unit, News International, to help ease lawmakers’ concerns about Murdoch’s company owning the country’s largest satellite TV operator.

Murdoch rejected those proposals, according to a person involved in the discussions, who was not authorized to comment publicly on the conversations.

Any shred of hope for a BSkyB takeover in the near future appeared to have been dashed last week after e-mails surfaced suggesting that a News Corp lobbyist and the British culture minister had conspired to get the deal approved.

“I don’t think anybody believes they’ll get another shot at controlling BSkyB any time this decade,” said a person familiar with the company, who would discuss its strategic plans only on the condition of anonymity.

The failed deal highlights a period of caution and relative stagnation at the US$50 billion media empire, known for its risk-taking and forward-thinking acquisitions. For months, News Corp’s buoyant share price and solid financial performance, driven by the strength of its US television assets, had allowed executives based in New York to paint the scandal as an unfortunate, but isolated series of events at the company’s British tabloids, a tiny part of the overall business.

However, the events in Britain and the resulting scrutiny have begun to take a toll on the broader empire, according to at least a dozen people familiar with the company, including several former News Corp executives.

On Tuesday, the Culture, Media and Sport Committee of Britain’s parliament released a report that further damaged the company’s reputation.

Inside the company, one of the biggest concerns is that News Corp now sits under a magnifying glass, making any potentially suspect business dealings, even from years ago, vulnerable to scrutiny by the US government.

A former News Corp subsidiary, a Moscow-based billboard company called News Outdoor Russia, is the subject of an FBI inquiry into whether the company bribed local officials to advance its business. The findings of that investigation could prove a violation of the Foreign Corrupt Practices Act, according to a person briefed on the inquiry. News Corp sold the company in July last year to a bank controlled by the Kremlin.

The potential for a billion dollars of fines related to a violation of the act could dwarf the economic downside of anything related to the lawsuits in Britain, said Behnam Dayanim, a regulatory lawyer based in Washington.

“It may be the single most feared corporate criminal statute out there today,” Dayanim said.

News Corp declined to comment. News Outdoor Russia has denied all suggestions that the company bribed officials to advance its business.

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