News Corp worth more without Rupert

What's News Corp really worth? At least 50 per cent more without Rupert Murdoch.

The company, which owns the Fox TV networks and the Wall Street Journal, fell 13 per cent last week after allegations surfaced that one of Murdoch's tabloid newspapers hacked into the voicemail of a murdered schoolgirl, wiping out US$6 billion from News Corp's market capitalisation in less than two weeks.

The US$41 billion company now sells for less versus earnings than any of its closest rivals.

By valuing each of News Corp's businesses separately, the New York-based media conglomerate would be worth US$62 billion to US$79 billion ($73 billion to $93 billion), estimates show, indicating News Corp trades at an almost 50 per cent discount to its units.

Murdoch, 80, is facing increasing scrutiny over his management of News Corp after the phone-hacking revelations forced him to abandon a takeover of BSkyB Group and deepened a slump that's left shareholders with a 16 per cent loss in the past five years even as its rivals gained.

"There's just sort of this generic Murdoch discount, which encompasses the concern that he will make decisions that are not consistent with other shareholder interests," said analyst Michael Morris.

Based on Morris' own sum-of-the-parts analysis, News Corp is worth about US$25 a share, 60 per cent higher than the company's closing price of US$15.64 last week.

Murdoch and his son James were summoned last week to appear before UK lawmakers to answer questions about employees paying police for stories and the FBI began examining whether News Corp employees hacked into phones of September 11 victims.

Les Hinton, chairman of News International, the UK publishing unit that included News of the World when the alleged hacking occurred, stepped down as head of the Dow Jones division on July 15. That came hours after the exit of News International chief executive Rebekah Brooks, who was then arrested by UK police on Monday. Brooks was editor of News of the World, which closed this month as a result of the scandal, from 2000 to 2003.

Ed Miliband, leader of the UK's opposition Labour Party, called yesterday for Murdoch's media company to be broken up.

Miliband told the Observer newspaper that the breadth of Murdoch's ownership is "unhealthy because that amount of power in one person's hands has clearly led to abuses of power within his organisation".

Sources say independent directors of News Corp have questioned the company's response to the crisis and whether a leadership change is needed.

Some people close to the Murdoch family and News Corp's directors said last week they thought it would make sense for Murdoch to relinquish his job as chief executive officer and stay on as chairman.

"Rupert should go because it's in the best interest of everybody," said Terry Smith, chief executive officer of London-based inter-dealer broker Tullett Prebon. "The phone-hacking scandal is symptomatic of his business judgment."

In a statement last week announcing Hinton's departure, Murdoch downplayed his own importance to the company.

"News Corp is not Rupert Murdoch," he said. "It is the collective creativity and effort of many thousands of people around the world."

Yacktman Asset Management's Don Yacktman, whose biggest holding is News Corp, said while Murdoch is in charge the company may remain undervalued versus its rivals.

"If he stepped down, yeah, probably the stock price would go up, because there's a Murdoch discount.

"There are other people on the management team than Murdoch."

The crisis at News of the World has for now thwarted News Corp's strategy to leverage pay-television provider BSkyB into new digital businesses. Full ownership of BSkyB, which has 10 million subscribers, would have facilitated the bundling of print and pay-TV subscriptions by spreading content over different media platforms, making News Corp less susceptible to advertising sales at its newspapers.

Murdoch's attachment to newspapers, which has contributed to a 28 per cent decline in operating income at News Corp's newspapers and information services unit in the past five years, has cost News Corp's shareholders billions of dollars.

The company's market value has shrunk by US$31 billion since it offered to pay a 70 per cent premium for the Wall Street Journal, in May 2007. News Corp wrote down the value of the US$5.1 billion deal by US$2.8 billion in the second quarter of 2009.

Since completing the deal in December 2007, News Corp has lost 21 per cent, including dividends, while media companies in the Standard & Poor's 500 Index gained 20 per cent.

News Corp also exited its 41 per cent stake in Gemstar-TV Guide International in December 2007 after US$6 billion in writedowns, and agreed last month to unload MySpace for US$35 million, a fraction of the US$580 million it spent six years ago.

Murdoch's purchase of his daughter's TV production company Shine Group caused shareholder Amalgamated Bank of New York to sue directors in March and accuse Murdoch of nepotism.

While News Corp languishes at a discount to the sum of its parts, one analyst says Murdoch is unlikely to consider a sale or break up after spending decades building up his global media empire.

Even if he were to step down, the family would still control management decisions through its 38 per cent stake in the Class B voting shares.

Smith says the phone-hacking allegations and the resignations of two senior executives will embolden more shareholders to question Murdoch and his role.

"We'll see more pressure on Murdoch now," he said.

"One of the things that's kept people away is that he has a powerful media presence, and people are fearful of crossing swords with him.

"Much of that fear is gone now."

- BLOOMBERG