James Murdoch BSkyB role clouded

July 17th, 2011 | by Matew Dow |

– James Murdoch’s future as chairman of British Sky Broadcasting was thrown into doubt on Monday after minority investors called for a corporate governance health check of its board.

It is the latest action to weaken James’ position and increased the likelihood that his executive role at News Corp could be in jeopardy.

This could open the door for Chief Operating Officer Chase Carey to be the next chief executive of News Corp instead of James as many investors had been expecting.

“We think they should review the composition of the BSkyB board and the influence exerted by those with ties to News Corp,” one top 10 investor in the British satellite broadcaster told Reuters on condition of anonymity.

A second top 25 investor in the company said BSkyB’s corporate governance remained “tricky” but he denied market chatter that fellow shareholders were determined to drive out Murdoch.

Carey, a 23-year News Corp veteran and long-time lieutenant of Rupert Murdoch, is now favored by investors in the United States to take control of the business if Rupert Murdoch, 80, stands down. Until a phone hacking scandal at News Corp’s UK papers started escalating over the past three weeks, James Murdoch, who is deputy chief operating officer, had been seen as his father’s successor.

A series of missteps by James, 38, in handling the scandal are believed to have upset his chances for taking over in the near term.

“We’re looking for the silver lining in all this, and it could be this crisis forces News Corp to clarify its succession plan,” said Tuna Amobi, an analyst at Standard & Poor’s.

“Most investors I speak to would love for Chase to be given an even more prominent role,” said Amobi.

News Corp’s U.S. shares were down 4.4 percent at $14.94 in afternoon trading on Monday.

The Australian stock sank to a two-year low after Rebekah Brooks, ex-chief executive of the company’s UK arm, News International, was arrested on Sunday and the head of London’s Metropolitan Police, Paul Stephenson, quit over the scandal. The shares ended down 4.1 percent at A$14.16 after touching a low of A$13.65.

News Corp’s Australian shares have declined 18 percent, or nearly A$3, this month as the News of the World hacking scandal engulfed News Corp executives.

On Monday, the shares fell 7.6 percent to an intraday low of A$13.65, the weakest since July 2009,

The company’s market capitalization has lost more than $6 billion in value since the phone hacking scandal erupted on July 4 in the UK.

“I think people would rather be cautious and mark it down rather than find a reason to defend it,” said Invesco senior investment manager Jackson Leung in Melbourne. Invesco is News Corp’s second-largest institutional shareholder with a 1.68 percent stake, according to Thomson Reuters data.

Shares in a News Corp takeover target, pay-tv company Austar , also fell on worries the deal may not proceed. The furor in Britain forced News Corp to drop a $12 billion plan to buy all of highly profitable UK pay-TV broadcaster BSkyB .

BSkyB’s credit default swaps spreads widened as the deal with News Corp fell apart, underperforming the Baa1 group median. The company’s 5-year CDS spread widened by 18 basis points to 93 basis points.

Robert Eckerstrom, senior analyst for Moody’s Capital Markets Research Group, said in a report that investors should consider selling protection on BSkyB’s CDS or buying its bonds at current levels.

Austar has agreed a $2 billion-plus takeover offer from its bigger rival Foxtel, which is owned by News Corp’s News Ltd division, billionaire James Packer’s Consolidated Media Holdings , and telecom company Telstra .

Last week, the Australian government said it may review media laws and ownership, following pressure from the influential Greens party.

Murdoch’s News Ltd dominates the Australian newspaper industry, commanding nearly three-quarters of daily metropolitan newspaper circulation, and the UK scandal has riveted attention in his homeland.

Murdoch, who now has U.S. citizenship, started his global media empire in Adelaide when he inherited the now defunct Adelaide News from his father, Sir Keith Murdoch.

Austar closed down 3.8 percent while Consolidated Media fell 2.9 percent, against a flat broader market, reflecting investor concerns on the future of the deal.

Still, the Austar and Foxtel camps and banking sources familiar with the deal said the offer was on track and did not expect it to be derailed because Foxtel is only 25 percent owned by News Corp.

Australia’s competition watchdog is due to rule on the bid for Austar on July 21.

Reuters is a competitor of Dow Jones Newswires, the financial news agency that News Corp acquired along with the Wall Street Journal in 2007.

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