BSkyB, News Corp. Stocks Drop Again Amid Phone Hacking Scandal

7:14 AM PST 07/08/2011 by Georg Szalai
Chris Ratcliffe/Bloomberg/Getty Images

But analysts doubt the Murdochs will face charges, and give News Corp. a "buy" rating.

 

NEW YORK - Lazard Capital Markets analyst Barton Crockett on Friday reiterated his "buy" rating on the stock of Rupert Murdoch's News Corp., saying the top echelons of the media empire are likely safe from legal risk. He also said that "the News Corp. phone hack fiasco is the strangest bad news we’ve ever seen hit a stock we covered."

As of 9:45 a.m. ET, News Corp.'s stock was down 4.1 percent at $16.71. On Thursday, the stock had only declined minimally after losing 3.6 percent, or $1.6 billion in market value, on Wednesday.

"We remain buyers amid [a] possible BSkyB approval delay," Collins Stewart analyst Thomas Eagan said Thursday in repeating his "buy" rating and $25 price target on the stock.

BSkyB shares on Friday morning U.S. time were down 4.6 percent to 775 pence.

In a report entitled "Hack-lash, why we’d buy on any dip," Crockett said the phone hacking scandal is "bad, strange, but limited" in terms of likely impact on the company's business and stock. "The scandal should have limited lasting impact on the stock, and we’d buy any dip tied to it," he said. He has a $26 price target on the stock.

Crockett highlighted that a BSkyB deal, which he expects would add to the company's earnings, is not included in his "buy" thesis, "and would, we believe, support additional upside."

The Lazard analyst also tried to size up the legal risk for various players inside the Murdoch empire, including deputy COO and News International chairman James Murdoch and his father and chairman and CEO Rupert. "There is clear risk that more editors, reporters and executives at News of the World could face arrest," Crockett said. "But unless a Murdoch made the very unlikely decision to personally approve hacking, we believe legal risk is unlikely to rise to the top. A loss of lower executives would be unfortunate, but likely immaterial to investors."

Thursday's decision to shut down the News of the World is "immaterial financially, positive thematically," Crockett wrote, estimating that the paper contributed 1 percent of News Corp.'s earnings before interest, taxes, depreciation and amortization. "That’s lost with the shutdown, but potential expansion of News Corp.'s Sun newspaper from six days to seven could win back much of the lost revenue with less cost," Crockett added. "Moreover, however bizarre the circumstances, investors favor scalebacks of newspaper exposure."

Discussing News Corp.'s bid to take full control of BSkyB, Crockett said the deal is "not lost, and News gained ammo for a lower price." BSkyB shares fell amid the flap, making clear that if News Corp. abandoned its bid, BSkyB's stock would drop as well. "This should lessen News Corp.’s need to pay a premium," the analyst concluded.

The News of the World shutdown "probably removes the one potential new hang-up - that U.K. regulators could bar a News Corp./BSkyB deal under a fit and proper test," he suggested. "News Corp. has acted forcefully, and by doing so we believe has made a persuasive case for fitness."

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