Suddenly, News Corp. Has Money to Burn

Analysts see cash being used to calm worried investors

Though the deal was a year in the making, Rupert Murdoch’s News Corp. has abandoned its bid for full ownership of the satellite broadcasting company British Sky Broadcasting Group. The decision follows intense police and media scrutiny of fallen Murdoch newspaper News of the World, not to mention intense public pressure in the U.K. and a negative reaction from Wall Street.

News Corp.’s withdrawal from the BSkyB deal signals the extent to which the News of the World phone hacking scandal has impacted business-as-usual at News Corp. But, for now, it also leaves News Corp. with $12 billion on its balance sheet that investors expected would be depleted from the company's coffers. 

“Where does the company go from here in terms of using the cash it built up for the BSkyB deal that never was? I think the $5 billion share buyback is just a baby step,” Tuna Amobi, an equity analyst with Standard & Poor’s, said, referring to a stock repurchase program announced just yesterday. Amobi speculated that News Corp. might use this extra cash to raise dividends or pay special dividends to ease investors’ concerns.

James Dix, a media analyst with Wedbush, also focused on the buyback when considering the question of what News Corp. will do with this cash. “I think it's possible that they’ll revisit the size of the buyback," Dix said. "The original $5 billion amount was consistent with going forward with BSkyB. If BSkyB is off the table, then that’s a top question [investors would have]: What are you going to do with all this cash?… Increasing the size of the buyback would be an option that they would consider."

Though it has withdrawn from the deal, News Corp. has not foreclosed altogether on the possibility that it would some day, after the heat from the scandal dies down, try again. After all, this deal has been in the works for some time. 

In June 2010, News Corp. offered to take control of the 61 percent of BSkyB that it did not already own at the price of about $11 per share. BSkyB’s board of directors summarily rejected this original bid as too low, but expressed interest if the price was upped to some $13 per share. Ultimately, News Corp. agreed to pay about $12 billion in total.

Before the scandal exploded last week, U.K. government approval seemed like a foregone conclusion. Parliament extended preliminary approval for the deal on June 30. On July 7, when Labour leader Ed Miliband requested that the transaction be presented before the government’s Competition Committee, Prime Minister David Cameron initially declined to do that, planning to allow the deal to bypass further government scrutiny. On July 11, however, Culture Secretary Jeremy Hunt announced the reversal of that decision. Then, on Wednesday, as Murdoch faced the prospect of an embarrassing and unanimous all-party parliamentary call for News Corporation to abandon its bid for BSkyB, News Corp. withdrew its offer. “It has become clear that it is too difficult to progress in this climate,” said Chase Carey, deputy chairman, president and COO of News Corp., in a statement on Wednesday.