Wall Street Eyes on Rupert and James Murdoch as Moguls Prepare for U.K. Questioning

Rupert Murdoch, James Murdoch - Cheltenham Horse Racing Festival - 2010
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“I assume there will be some fairly negative headwinds coming out” of media ethics hearings this week, and there could be implications for News Corp.’s stake in BSkyB, says one Wall Street observer.

LONDON – In July, News Corp. chairman and CEO Rupert Murdoch and son and deputy COO James Murdoch faced a British parliamentary committee that questioned them about the phone hacking scandal engulfing the conglomerate’s U.K. newspaper unit.
This week, they will be in the hot seat again, separately, to answer questions in front of the U.K.-government funded Leveson Inquiry into media ethics, led by judge Brian Leveson.
James Murdoch will be questioned Tuesday here at the Royal Courts of Justice in asession scheduled to last from 10am to 4:30pm London time, including lunch and other breaks. His father will appear for the same hours on Wednesday and, if necessary, on Thursday.
The Leveson panel has probed the British media’s relationships with politicians, police and the public. Given the size of News Corp., the influence of its U.K. papers, including The Sun tabloid, and the phone hacking scandal that started with the now-defunct News of the World, the comments from the Murdochs will be closely followed by others in the industry and Wall Street and by fans and critics of Murdoch alike.
Observers caution that the Leveson questioning won’t be able to go too far into phone hacking questions because of the ongoing police probes.
But observers are looking to see how defensive or attack-oriented the Murdochs will be in the meeting. Father Rupert, 81, famously told the parliamentary committee last year that being questioned was “the most humble day of my life” for him. One person who knows him said he was shaken by the allegations against the company he has built and wants to defend its legacy.
The mogul came out swinging against the current British coalition government of Conservatives and Liberal Democratsthis weekend, attacking its latest funding promises to the International Monetary Fund. "Back in Britain. Govt sending IMF another ten bn to he euro. Must be mad,” the mogul said via Twitter. “Not even US or China chipping in. Same time taxing hot food."
Wall Street observers say that the impact of the Murdochs’ appearances in front of the Leveson Inquiry on the company’s business and stock, which hit a 52-week high of $20.40 late last month, well above the low of $13.38 it establishedlast summer after the re-eruption of the hacking scandal, will depend on how controversial and combative the Leveson showdowns are.
“I know some investors are concerned that [U.K. regulator] Ofcom may find News Corp. unfit to hold a broadcast license and could force News Corp. to lower(not necessarily eliminate) its investment in [U.K. pay TV operator] BSkyB,” said Alan Gould, analyst at Evercore Partners. “It is always difficult to project what will come out of government hearings, but I assume there will be some fairly negative headwinds coming out of the hearings. As long as there is no contagion to the U.S. assets, which there has not been to date, then I do not think the headlines should meaningfully impact the stock.”
With U.K. lawyer Mark Lewis in the U.S. last week, there has been increased talk about a possible U.S. contagion though. “It seems the cases may be expanding to the United States,” said Peter Toren, intellectual property and computer crimes expert attorney with Wesibrod Matteis & Copley and a former computer crimes prosecutor.
“The company itself could be charged criminally under U.S. laws,” if any wrongdoing is found, he explained. “Fines would not be big enough to affect their bottom line, but their standing and reputation could be affected.”
To-date, nobody has been charged with a crime in the phone hacking investigations, but prosecutors said last week that they were considering bringing charges against 11 people. One of them is believed to be Rebekah Brooks, the long-time Murdoch ally who used to be the CEO of News International.
With the Leveson probe bringing the Murdochs to London this week following the Lewis trip to New York, Wunderlich Securities analyst Matthew Harrigan predicts that many News Corp. investors “will be fixated, unfortunately,” on the inquiry this week. “There is an increased perception that developments are snowballing again after having seemed to stabilize."
Could this week make or break James Murdoch’s future at News Corp. after recently stepping down as head of News International and chairman of BSkyB? “I would assume that the hearings would have to be quite negative to impact James' role at the company,” predicted Gould.
Many analysts continue to like News Corp.’s stock when looking purely at business trends outside of newspapers. "News Corp. is my favorite of the large-cap media names right now,” said Gould.
Email: Georg.Szalai@thr.com

Twitter: @georgszalai