News Corp. Unveils $5 Billion Stock Buyback After Shares Plummet Amid Phone Hacking Scandal

6:10 AM PST 07/12/2011 by Georg Szalai
Ben Gurr/Getty Images

In a nod to investors wondering how the conglomerate may use its cash amid a delay in the review of its play for full control of BSkyB, the program increases a previous stock repurchase authorization that had $1.8 billion remaining.

NEW YORK - In a nod to investors following recent declines in the conglomerate's stock amid the ongoing phone hacking scandal, Rupert Murdoch's News Corp. on Tuesday said that its board has approved a $5 billion stock buyback program. 

RELATED: Rupert Murdoch, James Murdoch and Rebekah Brooks Summoned to Parliament to Answer Phone Hacking Allegations
 
The program increases a previous stock repurchase authorization that had  approximately $1.8 billion remaining to $5 billion.

Stock buybacks help reduce the supply of shares and boost earnings per share and are therefore seen as a way to increase shareholder value and potentially boost a stock. The company's market value has declined by about $7 billion in recent days.

Analysts have in recent days started to wonder how News Corp. may use its cash amid a phone hacking-related delay in the regulatory review of its bid for full control of BSkyB.

"The growing cash balance at News Corp. remains the single biggest area of focus for investors," Nomura analyst Michael Nathanson had said in a report early Tuesday morning. "With $12 billion of cash on hand growing to an estimated $15 billion in fiscal year 2012, we believe News Corp. could finally take steps to reward patient shareholders with returns of capital in the near term."

In early Tuesday trading, News Corp. shares rose more than 3 percent, but they finished the day down 0.8 percent at $15.35.

News Corp. said it is targeting to acquire up to $5 billion of Class A  and Class B common stock from time to time over the next 12 months starting as early as mid-August.

The share repurchase program does not obligate the company to repurchase any dollar amount or number of shares.

Credit Suisse analyst Spencer Wang had highlighted earlier in the day that News Corp. shares are looking cheap after the phone hacking scandal-related stock declines in recent days.

"With the pullback in News Corp. shares, valuation is very undemanding" at a 40 percent discount to its peers, he said, adding that its discount has averaged 20 percent since 2002 and has widened to as much as 50 percent at times. "We think further material downside is likely limited and recent weakness may provide an attractive entry point for longer term, value-oriented investors," Wang said. He maintained his "neutral" rating though amid the fluid phone hacking situation.

Email: Georg.Szalai@thr.com

Twitter: @georgszalai
 

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