Why Murdoch Should Sell?

A supporter's view

The fact that one of the chief purported culprits in the illegal phone hacking served as spokesman for the Prime Minister after being editor of the News of the World may yet bring down David Cameron’s fragile coalition government. Cameron will need to do everything he can to distance himself from the Murdochs. Realizing that in the present climate News Corp’s bid for the 61% of BSkyB that it does not already own would likely be rejected upon whatever pretext the Media and Culture Secretary Jeremy Hunt could find, News cleverly forced a referral to the Competition Commission as a delaying tactic. The move took Hunt by surprise, as he was poised to tell the House of Commons that he was looking for an excuse to scupper the bid by seeking the advice of two other regulators (Ofcom, the communications regulator, and the Office of Fair Trading, the consumer protection agency). Perhaps with the passage of time afforded by the Competition Commission referral (a minimum of six months), tempers will have cooled and News may be allowed to buy in the 61% of Sky, which is a marvelous and valuable company. But I doubt it. I do not think that any government for the foreseeable future will want to be seen to be doing any kind of favor to the Murdochs.

In fact, the atmosphere in Britain may be so poisonous to Murdoch’s interests (after James’ decision to close the News of the World failed to defuse tensions, and seems like many of his decisions – taking stakes in ITV and Premiere, for example – to have been too clever and too little thought-through) that selling up is the only viable solution. At least that would dampen the furor that can be heard even this side of the Atlantic and threatens advertising at News Corp. properties including Fox and the Wall Street Journal.

Just as Murdoch himself snatched control of the News of the World from Robert Maxwell in 1969 by presenting himself as a harmless antipodean alternative to the then better-known and more-reviled quantity of the “bouncing Czech”, there are plenty of would-be newspaper magnates who could step in to buy News International to give the impression of a new broom. Chief among them is Russian oligarch and former KGB man Alexander Lebedev, who with his son Evgeny bought both the Evening Standard and The Independent in the UK, and has said that he wants to divest all his interests (including his one-third stake in Aeroflot) except media, of which he wants to acquire more. There may be other of his countrymen who are similarly-minded, including Chelsea Football Club-owner and avid yachtsman Roman Abramovich and the aluminum magnate Oleg Deripaska  (#9 on the Forbes list), who seems to like to dabble in British politics. Inevitably there are sheikhs and Chinese who might also fancy ownership of The Times, Britain’s oldest daily paper, and The Sun, its highest-selling.

In the US, News Corp. shareholders have already launched a lawsuit against the management (the Murdochs) in response to the damage that the hacking episode has done to the company and its stock price (down more than 7% on Monday alone). As attached as Rupert may be to his beloved UK papers, the best thing for shareholders may be to find a buyer as quickly as possible, and get out before the Sun or the Sunday Times is forced to follow the News of the World into oblivion.

And ironically, this might be a brilliant “lemonade moment” for News, where the CEO is about the only stakeholder who is comfortable with the substantial exposure the company still has to newspapers. Getting a reasonable price in an auction for News International might be smartest thing News Corporation could do. Does anyone really think that the value of newspapers in general will be higher in a year or five years or ten? Almost exactly 7 years ago the Barclay brothers paid over $1 billion for the Telegraph newspapers, which, like the Murdoch papers, were solidly profitable. No newspaper is ever likely to fetch such a price multiple – more than 20x operating profits – again. Over the past two years, by contrast, Lebedev paid £1 for each of the Evening Standard and The Independent, both loss-making.

But selling the British papers altogether would also neuter the “media concentration” competition complaint against a full News Corp bid for Sky, which is an asset with brighter prospects than the newspapers anyway. Shareholders have still not quite forgiven Murdoch for overpaying for the Wall Street Journal (almost 15x profits) 4 years ago but he might redeem himself if he managed to find a vanity buyer for the UK papers and in the process save the Sky bid.