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Virgin Media buyout creates £18bn company with no tax to pay

Category : Business

• Virgin Media boss will walk away with shares worth $78m
• Sector braced for battle as Liberty Global takes on BSkyB

John Malone’s takeover of Virgin Media will create a $28bn (£18bn) company headquartered in Britain, but the world’s largest cable group by customers will pay no UK tax for the foreseeable future.

Malone’s Liberty Global, which owns 11 cable companies in Europe, has confirmed an agreed cash and shares bid that allows Virgin chief executive Neil Berkett to walk away with shares worth $78m and gives 2,500 fellow staff nearly £16,000 each from an employee share scheme.

The combined company, which will retain the Virgin brand in Britain but not its boss, would have more customers than America’s largest group, Comcast, and the muscle to challenge Rupert Murdoch’s UK dominance of pay TV.

But the losses accumulated by Virgin Media after two decades of investment in the country’s cable network mean the new company would be exempt from tax for at least 15 years, according to analysts at Espirito Santo bank. Bernstein bank said Liberty would pay no UK taxes for “the foreseeable future”.

Virgin was formed in 2006 from the alliance of Virgin Mobile, NTL and Telewest, which were assembled by merging regional cable networks. After investing £13bn in laying fibre optic cables to half of UK homes, the industry was loss-making until Virgin began to turn a profit in 2010.

Because it has been profitable for three years, it can declare how much of its historic losses it will offset against profits. On Wednesday, Virgin put that number at £2.6bn – allowing significant leeway on its balance sheet before it needs to pay corporation tax in Britain. In effect, Virgin needs to accumulate profits far in excess of £2.6bn before it starts paying corporation tax. The company made £261m in pre-tax profit in 2012, which is forecast to rise to £500m after 2014. On that basis, Virgin would have been paying £100m a year into the public purse if it was a regular payer of corporation tax at a rate of 21% of profits.

“You’re looking at probably 15 years for them to work their way through, but this is a company that over the last 20 years has invested billions in network infrastructure,” said Espirito analyst Andrew Hogley. “This is a very different situation to a Starbucks or an Amazon, that is offshoring profits to avoid paying UK taxes.”

Malone’s entry into the UK cable market marks the culmination of a decade long ambition. In 2002, the man known in the US as the “King of Cable” after his creation of the company that became Comcast, attempted to use his 24% holding in Telewest to force its merger with NTL.

The bond holders of the heavily indebted companies resisted then, but are unlikely to do so this time around. Virgin still has £5.7bn of debt, and a majority of its lenders must agree to the takeover by a deadline currently set for 14 February.

The transaction is partly debt fuelled – Liberty plans to fund its cash offer by adding nearly £2bn to Virgin borrowings. The combined Virgin and Liberty Global will owe a total of $39bn, more than twice its annual revenues of $17bn, and more than its stock market value of $28bn. Speaking on Wednesday

Malone, who is now 71, said he had no intention to topple his 81-year-old sometime adversary Rupert Murdoch’s UK pay TV business BSkyB, which has nearly 11 million customers compared with Virgin’s 5 million. “Our relations with Sky are going to be very important for us,” he said. “We’ve had a long history of cooperation with News Corporation in its various configurations and we are looking forward to this.”

Liberty said it would continue to invest in Virgin’s network, improving its speed and capacity to carry data – the top speed offered to retail customers is currently 120 megabits a second. But Liberty also hopes to use its expertise to improve take-up of television and mobile phone subscriptions at its businesses on the continent.

Malone’s European broadband and cable companies have 18 million pay-TV subscribers, almost on a par with Murdoch’s 19 million in Britain and Europe. “Liberty is an 800-pound gorilla and Murdoch is another 800-pound gorilla,” said Ovum analyst Adrian Drury. “The reality is this will be a straight bloodbath because the UK is an incredibly competitive market.”Fries stressed he had no plans to compete with Sky for sports rights, where BT is already presenting the best funded challenge yet to the satellite broadcaster’s dominance.

The deal is expected to be finalised in June, at which point Berkett intends to step down. “I’m not a very good number two,” he said. The deal is worth an estimated $78m to Berkett, who took the reins as acting chief executive in 2007 and overseen a dramatic recovery in its fortunes. He has accumulated $56m in stock options which have not yet been exercised. He fully owns $8m in shares and the value of shares yet to be granted under his incentive plan stands at $13 under the terms of the offer.

News Corporation’s quarterly profits double

Category : Business

Increase related to acquisition of Fox Sports Australia and Fox Star Sports Asia and ‘improvements’ in publishing operations

Rupert Murdoch’s News Corporation has reported a doubling of quarterly profits but paid out a further $56m (£35.8m) in costs related to the News of the World phone-hacking scandal.

News Corp reported net profits of $2.4bn in the three months to the end of December, compared to $1.1bn in the same period a year earlier, on sales up 5% to $9.4bn. Most of the increased profits were related to the acquisition of the 50% stakes in Fox Sports Australia and Fox Star Sports Asia that News Corp didn’t already own.

Murdoch said the increase in profits was due to “double-digit gains” in News Corp’s cable TV businesses and “improvements” in its publishing operations, which includes the Sun, the Times, the Sunday Times and the Wall Street Journal.

The company said its publishing division, which reported a $16m increase in profits to $234m, benefited from the launch of the Sun on Sunday in February 2012.

The $56m in compensation payments and costs related to the News of the World take the total payout related to the phone-hacking scandal to more than $340m. News International, the division which controls the UK newspapers, is making a concerted effort to close down the hacking saga, agreeing out-of-court settlements on 143 of 165 outstanding civil damages cases it is facing in the high court before a key hearing before a judge on Friday.

Murdoch said News Corp was making progress in its plan to split the $54bn global empire into two separate publicly listed companies – a newspaper, book publishing and education division and a media and entertainment company. Work on splitting up the company cost the company $23m in the latest quarter.

Last week, News Corp said Will Lewis, one of the executives running News Corporation’s controversial management and standards committee dealing with the phone–hacking scandal, is moving to a new senior role with in the newspaper division’s headquarters in New York.

James Murdoch, Rupert Murdoch’s son and News Corp’s deputy chief operating officer, said he did not expect Liberty Global’s $23.3bn takeover of Virgin Media to effect the competitiveness of the cable TV market.

Leveson plunges coalition into uncharted territory

Category : Business

Leveson report prompts David Cameron and Nick Clegg break to with precedent by delivering contradictory statements

The coalition entered uncharted territory when David Cameron and Nick Clegg broke with modern precedent to deliver contradictory back-to-back government statements on the Leveson inquiry.

As the veteran rightwing Tory MP Peter Bone called on Clegg to resign for failing in his “first duty” to support the prime minister, the two coalition partners insisted that their differences did not mark a collapse in relations.

Sources in both parties said Cameron and Clegg agreed that the status quo on press regulation was unacceptable and that they needed to move quickly.

They both expressed doubts about giving Ofcom a role in overseeing the new press watchdog and in changing data protection rules.

But Tory and Liberal Democrat ministers are on course to vote on opposing sides if Labour succeeds in forcing a Commons vote on Leveson’s central proposal for a new independent press watchdog to be underpinned by legislation.

Ed Miliband, who met Cameron and Clegg for 30 minutes after their government statements, could trigger the vote before Christmas if the government fails to publish a timetable for implementing the broad thrust of the Leveson report. Cameron and Clegg have agreed that any Commons vote would be designated a free one, allowing the Lib Dems to support Labour or to abstain.

If Labour and the Lib Dems join forces with up to 40 Tory MPs who have voiced support for legislation, Cameron would be defeated. Labour and the Lib Dems currently have 309 MPs – six more more than the 303 Tory MPs. If the 40 Tory supporters of legislation joined forces, they would easily command a Commons majority.

But a vote introduced by Labour on an opposition day motion would only be advisory. If Cameron were defeated, he would have to consider whether a proposed draft bill should be introduced as a full government bill without the agreement of the largest party in the Commons.

Maria Miller, the culture secretary, is drawing up the draft bill as a way of putting pressure on the press to comply with what Cameron called the “Leveson principles”. He defined these principles as establishing an independent self-regulatory body that would introduce a “standards code, an arbitration service, and a speedy complaint-handling mechanism”. It would also have to have “the power to demand up-front prominent apologies and impose up to million-pound fines”.

Downing Street hopes that the Lib Dems and Tory MPs who have voiced support for legislation can be won over if the press agrees to implement in full Leveson’s framework for the new press body. Senior No 10 sources were voicing confidence after Lord Black of Brentwood, an executive director of the Telegraph Media Group who chairs the Press Standards Board of Finance, said the industry would “fully” implement the principles.

Black, who was Cameron’s boss at the Conservative Research Department, echoed the thinking in No 10 when he told peers: “If the industry can make rapid progress in the task of establishing a new system, such [legislation] would not be just be profoundly dangerous but completely unnecessary.”

Clegg has, formally at least, not shut off the possibility of establishing a new press watchdog without recourse to legislation. In his statement, he told MPs: “If we could create a rigorous, independent system of regulation which covers all of the major players, without any changes to the law, of course we should.”

It is understood, however, that even if the industry implements in full the “Leveson principles”, the deputy prime minister is minded to insist that legislation will still have to be introduced. “Lord Justice Leveson has spent months looking at this and he thinks the only way you can do this is with legislation,” said one Lib Dem source as the party indicated that Clegg would need to be persuaded not to introduce this recommendation.

The deputy prime minister’s decision to stand apart from the prime minister on one of the defining issues of this parliament has upset the Tory right. Peter Bone, the veteran Tory MP for Wellingborough failed in an attempt to block Clegg on the grounds that back-to-back government statements have not been delivered since 1932, and asked whether the deputy prime minister would consider resigning.

Bone said: “The first duty of the deputy prime minister is to support the prime minister. We have today seen something that has never happened before in parliamentary history. The doctrine of collective responsibility has been swished away by the deputy prime minister. How can he spend 25 minutes at the despatch box criticising the prime minister and remain in the government? Is he considering resigning?”

Clegg said Bone appeared not to understand that the Tories had lost the election as he indicated that yesterday’s double statements might be repeated. “He still struggles to get coalition. His party did not win the election, and my party did not win the election, so we have a government of two parties that must compromise.

“That is different to previous one party governments. It might lead to anomalies, glitches and innovations in this venerable place that he finds unwelcome, but that is the reality of coalition government. I suspect it will be repeated quite a lot in future.”

The warm reception among the Tory right for Cameron’s decision to reject a core Leveson proposal shows that the prime minister will face intense pressure if the Liberal Democrats and Labour managed to defeat the Tories.

David Davis, the former shadow home secretary, offered praise when he said: “May I for one welcome wholeheartedly the prime minister’s caution about using statute in this matter? I remind him that it was not a policeman, a regulator or even a judge who highlighted the hacking scandal – it was a member of our free press. As such, one of our highest priorities is to ensure that whatever we do preserves the independence and freedom of our press from government intervention, because that is the best bastion of our freedoms.”

Miliband believes that a failure to implement Leveson’s proposals for a new press watchdog “in their entirety” would betray the victims of press intrusion. The Labour leader will force a Commons vote by the end of January but could bring this forward before Christmas if Downing Street stalls on publishing a timetable for implementing the findings.

Miliband told MPs: “I believe that Lord Justice Leveson’s proposals are measured, reasonable and proportionate, and Labour members unequivocally endorse the principles set out and his central recommendations. We support the view that Ofcom is the right body for the task of recognition of the new regulator, and the proposal that the house should lay the role of Ofcom down in statute. We endorse the proposal that the criteria any new regulatory body must meet should be set out in statute. Without that, there cannot be the change we need. Lord Justice Leveson is 100% clear on that in his report.”

The Labour leader, whose fortunes started to improve in the summer of 2011 when he took a tough stance over the News Corp bid for BSkyB, is determined to see the Leveson report implemented because he believes the behaviour of the press is an example of what he calls irresponsible capitalism. But any alliance with the Lib Dems may become strained because they differ in key areas, such as the role that would be played by Ofcom.

Elisabeth Murdoch’s praise for the BBC tells of a brighter TV future

Category : Business

The sister’s MacTaggart speech in Edinburgh was about much more than putting the brother in his place

Now we know that plurality exists, even among Murdoch siblings. And perhaps, after Elisabeth Murdoch’s MacTaggart lecture in Edinburgh last week, we know something more: that the first daughter of the second wife has a keen intelligence and a fine, almost intuitive grip of the issues facing the area she knows best, television. The kind words for the BBC in her speech were interpreted as some kind of break with brother James and his own MacTaggart paean to profit. Most of the sentiments fit Ms Murdoch for a new career as a Guardian leader writer if Shine goes pear-shaped. But her interest in interactivity, open channels and open minds, public service broadcasting standards that begin with Joe Public, not the broadcasters, seemed as fervent as it was genuine.

This wasn’t mere politicking with a News Corp cape in the back cupboard. This, if words hold any meaning, was an argument about values and responsibilities for the next generation of BBC, as well as News Corp, executives.

Too effusive? Perhaps. Nevertheless, it was fascinating to set the future that Ms Murdoch sees against Harriet Harman’s almost simultaneous pledge to attack “the invincibility of the Murdoch empire”, whether with all-party support today or, come 2015, with Labour back in government.

If that’s a dulcet sub-Miliband pledge to force a sale of the Times and Sunday Times, it’s an intriguing notion in a world none too full of suitable buyers. But it also misses the kind of plurality this particular Murdoch embraces: the plurality of mass media where you, the viewer, can choose, change – and answer back.

Murdoch and Zuckerberg to talk deals at Sun Valley conference

Category : Business

News Corp and Vivendi shakeups heighten expectations as media and technology moguls meet for annual event

News Corp’s Rupert Murdoch, Facebook’s Mark Zuckerberg and Google’s Sergey Brin are expected to be among those talking deals next week when media and technology moguls descend on remote Sun Valley for their annual conference.

The latest moves made by News Corp and Vivendi signal a shifting landscape of opportunities for snatching up assets as media companies navigate new entertainment platforms, a soft economy, turmoil in Europe and the upcoming US presidential election.

The 30-year-old conference, hosted by boutique investment firm Allen & Co, has consistently attracted heavy hitters and spawned blockbuster deals including Disney’s $19bn (£12bn) acquisition of Capital Cities/ABC in 1995. However, with the exception of Comcast’s 2009 purchase of NBC Universal, few major tie-ups have come out of Sun Valley in recent years.

That may change at this year’s event, which runs from 10 July to 14 July at the Sun Valley Resort. Developments in the past few weeks have industry commentators predicting media companies will shed more assets while they jockey to grab consumers’ attention.

Most notably, News Corp’s board approved a plan to split the $60bn empire into two publicly traded companies, one focusing on entertainment and the other on publishing, with the Murdoch family controlling both. Rupert Murdoch and his children – James, Lachlan and Elisabeth – are expected at Sun Valley amid speculation over their roles in the new companies.

“I think it’ll be more provocative this year. There will be more discussion about whether these bigger conglomerates start breaking up. It’ll be the topic du jour considering what happened with News Corp,” said Todd Davison, Morgan Stanley’s co-head of media investment banking for North America.

Between whitewater rafting and hikes in the mountains, executives attending the so-called “summer camp for moguls” have the chance for high-level talks about possible sales or collaborations.

Close attention will be paid to who lunches together, chats over cocktails, or huddles with the venture capitalists and private equity chiefs expected to attend.

Other media titans whose private jets are expected to clog the small airport’s runway include Disney chief executive Bob Iger, talkshow queen turned network executive Oprah Winfrey and Time Warner CEO Jeff Bewkes, according to a list of attendees obtained by Reuters.

On the tech side, guests include Amazon chief Jeff Bezos, Google’s Brin, Eric Schmidt and Larry Page, and Netflix chief Reed Hastings.

Facebook, one of the most closely watched and highly anticipated companies to go public, fell flat with its IPO in May after technical glitches on the Nasdaq and questions about its ability to increase advertising revenue. The fallout from the social network’s public debut and how that will affect other tech companies’ plans of going public will certainly be a topic of conversation among the moguls.

So will the fate of Yahoo, an internet icon that is struggling to regain its leadership status after being usurped by Google, Facebook, Apple and others. Yahoo’s interim chief executive Ross Levinsohn is currently on the guest list, but he may not make the event due to the annual meeting of Yahoo shareholders next week while former Yahoo CEOs Jerry Yang and Terry Semel are also expected to attend the conference.

Apple chief executive Tim Cook appears on the guest list, but the iPhone maker has not confirmed whether he will attend. His predecessor, the late Steve Jobs, shunned the event, though his widow, Laurene Powell Jobs, is listed among this year’s guests.

Even if Cook does not attend, the next version of Apple TV will be on the minds of media executives.

“I’m sure there will be lots of speculation with the full version of Apple TV. If and when that happens, that will have a major impact on how internet video is consumed in the living room,” said Ken Allen, director in Blackstone’s technology advisory practice.

Vivendi, the French media conglomerate, could be looking to unload some assets now that long-time chief executive Jean-Bernard Levy has stepped down.

One Vivendi asset widely considered to be ripe for disposal is its 60%, or $8bn stake, in US video game publisher Activision Blizzard, whose chief executive Bobby Kotick, a Sun Valley conference regular, is registered this year as well.

The company could also spin off Moroccan telecom company Maroc Telecom or mull a Murdoch-style split of its business into a telecom and media arm, analysts and bankers have said.

Lucian Grainge, the head of Universal Music Group, another Vivendi asset, will also be in attendance as his company continues its battle for regulatory approval of EMI Group.

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News Corp shares hit five-year high as board considers split

Category : Business

Analysts back plan to divide Murdoch group into entertainment and publishing companies as investors push for more change

News Corporation’s share price has risen to a five-year high of just over $22 on the back of the proposed plan to split its entertainment and publishing businesses into two separate publicly listed companies.

The company’s share price was up 1% in early trading in New York on Wednesday morning, reaching $22.13, a price last seen in November 2007.

New York analyst Laura Martin, of Needham & Co, on Wednesday said in a research note that the proposed split, which is being discussed at a board meeting at News Corp’s headquarters in the city, could add “approximately $5 per share of value” for investors. Martin upgraded her News Corp stock rating from “hold” to “buy”.

“Although the company will not say a split limits litigation risk, we believe if the company were split into two corporate entities, it would be harder for any litigation settlement to come out of the entertainment assets, including the crown jewels Fox News and Fox broadcast network and stations,” she said. “We also believe that any future costs of legal investigations would accrue to the print entity, freeing up the entertainment entity to grow earnings unhindered by these expenses.”

News Corp’s share price rose by 8% on Tuesday following confirmation that the split was being considered, giving investors who have long hoped for a sell-off of News Corp’s newspaper titles hope that their stock would rise further upon the demerger.

Part of the rise is due to a $10bn share buyback programme, meant to appease unhappy investors. But the company’s star assets, the 20th Century Fox movie and TV studio, the Fox TV network, and cable channels including Fox News, FX, Fox Sports and Fox Business News, have also performed well and more than compensated for the less stellar performance of its newspapers.

Shareholders are still pushing for more change at the company. Chairman and chief executive Rupert Murdoch’s handling of the News of the World phone-hacking scandal disillusioned investors to the extent that a majority of independent shareholders voted against key members of his board at last year’s annual general meeting. They also lobbied for an independent shareholder to replace Murdoch.

Speaking anonymously, one shareholder said they would want to see a more autonomous board at the new entertainment company. “We have no problem with Chase Carey [News Corp chief operating officer], he acts in the interest of shareholders. But Rupert has shown that he is prepared to put his own interests first time and again through this scandal. He’s a great man but we need a balance,” he said.

The shareholder said he was less interested in taking shares in the newly listed publishing company but that the appointment of a Murdoch to run the firm would be “another sell signal, should we need one”. Rupert’s eldest son Lachlan has been tipped to run the publishing side of the business.

The phone-hacking scandal initially hit News Corp’s shares hard but the company has added $5bn in value since July last year when the Guardian first broke the news that News of the World reporters had hacked into the phone of murdered schoolgirl Milly Dowler.

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News Corp confirms possible split into two companies – as it happened

Category : Business

• Newspapers and book publishing to be spun off from TV, film
• News Corp shares rise 8.3%
• Split won’t help any future play for BSkyB, regulator says
All times ET

11.30am: With a confirmation from News Corporation that the company is considering a split into two entities – a profitable television and film wing, and a less lucrative publishing wing – we are going to liveblog the story as it unfolds. Here’s the background:

Rupert Murdoch’s News Corp confirmed a report in the Wall Street Journal overnight that it is seriously looking into a split, a move some inside the company have championed for years but which Murdoch himself has resisted. Resurgent talk of a division follows a terrible public relations run for the publishing arm of News Corp, which has been battered in a phone hacking scandal that led to the closure of its oldest paper, News of the World.

The split would separate the company’s lucrative entertainment wing from its publishing business. The latter would comprise the Times, Sunday Times and the Sun in the UK, as well as the WSJ, the New York Post, The Australian and the book publisher, HarperCollins. The entertainment entity would include the Fox movie, TV studio and TV network businesses, and cable channels such as Fox News.

The markets responded favorably to the news, with News Corp shares opening up 5.6% as Nasdaq opened Tuesday.

Important to understand what a defeat splitting the company will be for Rupert.

— Michael Wolff (@MichaelWolffNYC) June 26, 2012

11.37am: There’s really no way to put a split of News Corp into corporate context because nothing like it has ever happened at the company, the Guardian’s Jason Deans writes:

The restructuring, confirmed on Tuesday following overnight reports in the Wall Street Journal and New York Times, would be the biggest corporate upheaval at News Corp since Murdoch founded the global media company more than 30 years ago.
According to a source cited by the New York Times, the Murdoch family would be likely to retain control of the newly split companies.

Such a proposal has been aired in the past, and Murdoch has always rejected it.

However, the negative impact of the News of the World phone-hacking scandal has brought the argument about the diminishing importance of newspapers in News Corp’s global business the top of the agenda and provided a focus for shareholder unrest with the Murdoch family’s management of the company.

The Wall Street Journal notes that “the idea is similar to the split of Viacom Inc. into two companies in 2006, when CBS was carved off as a separate company. In that break up, Viacom’s controlling shareholder Sumner Redstone ended up with control of both companies.”

11.50am: To characterize the prospective reorganization of News Corp as a “split” is misleading if that makes it sound like the company is halving, or splitting down the middle.

In fact the company’s entertainment arm dwarfs the publishing concern by a ratio of around 3-to-1. Here’s the Wall Street Journal (which is part of the News Corp publishing arm) on the current structure of News Corp.:

The entertainment assets make up by far the bulk of the company, contributing three-quarters of the $25.34 billion in revenue for the first nine months of the fiscal year. Those assets accounted for roughly 90% of the operating profit in that period.

In the nine months through March, News Corp.’s various segments together had operating profit of $4.2 billion, of which the publishing division contributed $458 million.

The publishing division itself can be broken down between newspapers and the book publisher HarperCollins. Here’s former Guardian correspondent James Robinson:

If News Corp splits in two shares in its print and publishing arm will plummet faster than Facebook stock after the separation is completed

— james robinson (@jamesro47) June 26, 2012

@JRyan86 asks for a clarification, pointing out that the publishing arm chalked up $458m in profits in the 9 months through March:

@JRyan86 Journal is doing well, Harper Collins OK but UK titles bleeding cash and are toxic. It’s an ‘ex-growth’ business. Worth £2bn max

— james robinson (@jamesro47) June 26, 2012

11.59am: Rich Greenfield, media analyst at global trading firm BTIG, called the prospective bifurcation of News Corp a “stunning” move, my colleague Dominic Rushe reports:

“It’s hard not to be very excited about this,” Greenfield said. He said the newspaper assets were the single biggest reason why investors were avoiding News Corp shares and that even before the hacking scandal investors had been “scared and frustrated” by Murdoch’s attachment to News Corp’s publishing business. “Rupert Murdoch has been viewed as so wedded to the newspaper assets that he wouldn’t even consider separating the company,” he said. “This is a significant positive.”

12.13pm: How much of a drag is the publishing arm of News Corp. seen to be on the rest of the company?

The balance sheet matters, but the real liability of the newspaper business is not in the lemons the company owns but in the crown jewel the company failed to acquire: the British Sky Broadcasting Group.

BSkyB has a market cap of around $18b. News Corp owns 39 percent. As far as Rupert Murdoch, his son James and many News Corp shareholders were concerned, News Corp should have acquired a majority stake in BSkyB. That deal would have been worth a lot, even in News Corp terms.

And that deal very well might have happened, had it not been for the rampant misconduct inside a few relatively shabby, profitless newsrooms under the News Corp umbrella, and the Leveson inquiry that exposed it.

Now the corp wants to fold the umbrella.

12.29pm: How did Rupert Murdoch build News Corp from the Adelaide News into a global multimedia giant? How did his mid-1980s jump into film and TV work? What about his brush with bankruptcy in the early 1990s?

Check out our interactive feature on how News Corp was built, “The eight ages of Rupert Murdoch.” It traces his rise from sub-editor at the Daily Express to his current perch atop the world’s biggest media company.

Looks like the next chapter may be shaping up.

12.36pm: When Rupert Murdoch announced the Sun would begin publishing a Sunday edition, and then personally oversaw the launch in London, the conventional wisdom was seemingly confirmed that the old mogul’s heart still lies in newspapers, his first love.

But is it a love that counts the costs? Looks like we’ll find out.

Spinning off New Corp print division will produce a company with vast losses. Not sure how shareholders could sustain WSJ, Post, Times hole.

— Michael Wolff (@MichaelWolffNYC) June 26, 2012

12.47pm: My colleague Dominic Rushe has spoken with David Joyce, media analyst at Miller Tabak, who considers the prospective News Corp split in light of the continuing Justice Department investigation into its activities in the United States.

The move would still leave News Corp facing the full consequences of the US government’s investigation into the hacking scandal, Joyce told Rushe:

“I don’t think there is any way that they can legally separate themselves from that,” Joyce said. But he said that the move would be welcomed by investors who have long pushed for a split. “The phone hacking scandal has really made this company open up to new ways of thinking. This is a very good move,” he said.

1.15pm: Before the News of the World hacking scandal exploded in Rupert Murdoch’s face, News Corp appeared to be on track to take over BSkyB, an effort our interactive team charted in glorious full color in March 2011.

The graphic breaks down what Murdoch owned in which countries, how big each business was and how a BSkyB acquisition would measure up to other News Corp holdings.

For a full-size image click here.

At the time Simon Rogers reported on the status of the deal:

Rupert Murdoch’s plan to takeover BSkyB looks set to go ahead, now that culture secretary Jeremy Hunt has OK’d News Corporation’s plan to spin off Sky News.

The news subsidiary will be spun off into a new publicly listed company called Newco. That would then allow the proposed £8bn purchase of the 61% of BSkyB it does not already ownNews Corporation is to license the Sky News brand to the operation for seven years, providing an incentive to renew a second funding deal. buy up the rest of BSkyB – he presently controls 39.1% of the company which is increasingly dominating British broadcasting.

What might have been.

1.25pm: Could splitting News Corp open the way for a future BSkyB acquisition attempt?

A former director of the UK Office of Fair Trading tells the Guardian’s Mark Sweney that the new split structure would likely not help any future acquisition bid, because the two companies would still be viewed as one.

Here’s Becket McGrath, partner at Edwards Wildman Palmer and former Office of Fair Trading director of competition enforcement for media, sport and information industries:

The presumption is that separating the newspapers and TV/entertainment operations into two businesses will not make any difference to a plurality analysis if there was another attempt to takeover BSkyB.

The two [new] businesses would still be treated as one group, because according to the report News Corporation will retain a 40% share in both operations.

The only way – and I believe it to be a very, very long shot – is if somehow there was complete management and editorial independence in practice at the two businesses. The concerns the first time were over Sky News and the newspapers, the remedy was to put Sky News at arms length, and if they were to become structurally separated through a News Corp restructure now I still believe it would be avery high bar to prove the same media plurality issues would not apply the second time around. The same people are ultimately controlling both.

To me it seems more like the changing of structure on an organogram, for balance sheet purposes perhaps, it is not uncommon. Although it would certainly make the newspapers easier to sell, if that was a goal, they would effectively be pre-packaged.

1.47pm: BSkyB shareholders are underwhelmed by news of a potential News Corp split, the Guardian’s Nils Pratley observes. Shares of the broadcaster bumped up 2.7% today, a modest gain given the major news. Here’s Nils:

BSkyB investors’ underwhelmed reaction looks to be correct – there’s a world of difference between sustaining an ambition and being in a position to fulfil that ambition. Demerger, in itself, changes nothing. The mere fact that entertainment (containing the broadcasting interests, including the 39% stake in BSkyB) and publishing (containing News International) could be separate companies would surely be regarded as irrelevant by politicians and regulators. The Murdoch family would still have 40% control of both parts.

1.54pm: Michael Wolff has the inside line on today’s news:

This may be the most humble day of Rupert Murdoch’s life. His company seems to be spurning his newspapers, and also his leadership – or at least, his Sun God standing. Early Tuesday morning, News Corporation said, through its newspaper, the Wall Street Journal, that it was considering a spin-off of its print properties. Since using the Journal made this something of an in-house announcement, for “considering” one might better read “actively planning”.

Perhaps not coincidentally, Chase Carey, News Corp’s chief operating officer, was spied yesterday having lunch with Stan Shuman of Allen & Company, one of the company’s long time investment bankers. Lunch was at Michael’s, the media business canteen in New York, where they were sure to be seen – possibly something, in other words, of a victory walk for Carey, who is the primary operator of the entertainment assets which would become the whole of News Corp.


But what of the papers, then? And of Murdoch himself?

The print division made a small profit last year. With the closing of the News of the World, one of its big earners, and with the continued fall in newspaper circulation and advertising, those earnings may be expected to disappear almost immediately. That will leave the three big money losers particularly exposed: the New York Post, the London Times, and the Wall Street Journal. The losses among them might be as great as $250m.

It is almost impossible to imagine that a stand-alone public print company would not have to quickly cut costs and dispose of those assets that do not have a credible path to profitability. Indeed, for each of News Corp’s newspapers, protected so long by the company’s vast diversification, being spun off, instead of sold to enthusiastic bidders, might be their worse fate.

Read the piece in its entirety here.

2.06pm: Clare Enders, founder of the media research company Enders Analysis, tells the Guardian’s Lisa O’Carroll that a News Corp split could represent a “seismic” change for British newspapers and the thousands of staff in Wapping. Here’s Lisa:

“Splitting off a business that is close to Rupert Murdoch’s heart and represents the foundation of the company’s original wealth is historic,” Enders said. “Essentially the causality of this is driven by the view that the newspaper issues in the UK here are dragging down the valuation of the company’s TV assets, which have had an outstanding year. This is despite the fact that company stock has gone up by more than 50% in the last year despite the phone hacking. Some people believe that if the TV assets were run on a standalone basis the valuation would be higher.”

Enders said she had understood that the leak to the Wall Street Journal was “inadvertent” and that the company was at the early stages of considering the strategy.

“No one has looked into the asset structure but more iumportantly it’s not entirely sure that it would actually work or happen in due course but looking at it for the first time and officially is an historic step.”

She said speculation coming from the City that this was a prelude to a renewed bid for BSkyB was wrong. However she believes that this strategy has James Murdoch’s fingerprints all over it, even though it represents a complete shift from strategy a year ago when he was pushing for a cross platform multi-media experience bundling newspaper and TV content in subscription packages.

“He is a corporate action man,” she said. “He’s a doer”.

3.03pm: Winds of change blowing through News Corp:

Don’t think anyone would have expected Chase (I bend, when Rupert blows) Carey to come out on top.

— Michael Wolff (@MichaelWolffNYC) June 26, 2012

3.30pm: Amy Chozick reports in the New York Times that top News Corp executives are meeting today in New York to discuss splitting the company.

Chozick taps anonymous sources inside the meeting to describe who would run the new companies. The new publishing division could include “a newly formed education division run by Joel Klein, the former New York schools chancellor and a trusted adviser to Mr. Murdoch,” Chozick writes.

The Deal Book report continues:

News Corporation management is likely to remain in place, under [Chase] Carey and James Murdoch, currently the deputy chief operating officer. Rupert Murdoch would potentially serve as chairman of both companies, though a person close to the company cautioned that no executive decisions have been made.


The executive ladder of the separate company has not been established. But two people close to the company said Robert Thomson — editor in chief of The Journal and managing editor of its parent company, Dow Jones & Company, and a close confidant of Rupert Murdoch’ s — is a possible candidate.

“Dow Jones is the trophy asset so it make sense,” one of these people said.

4.00pm: We’re going to wrap up our live blog coverage of the News Corp schism. Here’s a summary of the latest developments:

Rupert Murdoch and other top News Corp executives are meeting in New York today to discuss spinning off the company’s publishing activities into a separate company, a move shareholders, if not Murdoch himself, are thought to favor. News Corp stock jumped 8.3% on the news.

The Murdoch family would likely retain control of both companies with an estimated 40% voting stake.

The new publishing company would include the Times of London, the Sun, the Wall Street Journal, the New York Post, The Australian and the book publisher HarperCollins. The entertainment entity would include the Fox movie, TV studio and TV network businesses, and cable channels such as Fox News.

Spinning off its news division will not give News Corp a better chance at taking full control of BSkyB, the British broadcaster, according to a former regulator, unless the ownership structure of the two new companies changes significantly. Shareholder displeasure over the News of the World phone-hacking scandal and foiled BSkyB takeover bid was seen as a primary driver of the plan.

Skepticism was rife as to the ability of News Corp’s publishing arm to go it alone without a boost from the profitable TV and film division. The move, writes Michael Wolff, “will leave the three big money losers particularly exposed: the New York Post, the London Times, and the Wall Street Journal. The losses among them might be as great as $250m.”

‘Congrats on Brussels!’ Texts reveal Hunt’s close alliance with Murdoch

Category : Business

Culture secretary’s evidence to Leveson inquiry reveals extent of relationships with key players in News Corp’s bid for BSkyB

Culture secretary Jeremy Hunt was grilled for six hours at the Leveson inquiry and his evidence touched on phone-hacking, his meetings with the Murdochs, the role of his former special adviser Adam Smith and whether he really did hide behind a tree.

On James Murdoch

Secret phone calls and chummy texts congratulating James Murdoch after Brussels passed his £8bn BSkyB bid were among the most damaging revelations.

The inquiry heard how he chatted with Murdoch on 15 November 2010 – the very day he received “strong legal advice” not to get involved in the process, something that Hunt thought was “entirely appropriate”.

They had a second, hitherto unknown, phone chat on 21 December, just hours before Hunt inherited responsibility for overseeing the bid when business secretary Vince Cable was stripped of the role after being recorded by undercover reporters saying he had “declared war on Mr Murdoch”.

But it was the text exchange with Murdoch earlier that same day setting up the telephone chat that initially looked like the torpedo that would finish Hunt’s career. “Congrats on Brussels. Just Ofcom to go!” Hunt texted just before 1pm on 21 December.

Weeks earlier Hunt had written to David Cameron to tell him that Murdoch was “furious” with Cable’s decision to refer the BSkyB bid to Ofcom, the broadcasting watchdog, and this was confirmation that Hunt shared his frustration.

When the pair finally chatted on the phone at 4pm, the Cable story had broken and Murdoch told him he was “totally horrified” that this seemed to show the business secretary was anti-Murdoch from the start.

Hunt promptly fired off emails and texts to Andy Coulson, then Downing Street head of communications, and George Osborne warning that Cable could have “screwed up” the bid.

Hunt agreed he was “sympathetic” with the bid but claimed there was nothing inappropriate since the “congrats” text happened before he took charge of the quasi-judicial process and he was able to “set aside” his feelings and be “scrupulously fair” once he inherited the role.

But the texting didn’t stop. In March, after News Corp announced its undertakings to keep Sky News independent of the company, Murdoch texted him to say: “Big few days. Well played. JRM.” Hunt fired back: “Thanks. Think we got right solution”.

Hunt protested his innocence claiming this did not show bias. “I though it was something of an olive branch because my previous two contacts with Mr Murdoch had been very difficult.” On 31 March there was another text – this time Hunt congratulating Murdoch on a promotion that would take him back to New York. “I am sure you will really miss Ofcom,” he joked.

The inquiry heard how the November 2010 calls came despite legal advice that it would be “unwise” for Hunt to get involved as it could “raise the risk of challenge to a decision” further down the line. Hunt told the inquiry he felt the call was “entirely appropriate to hear what a big player in my industry was saying about a particular situation”. He spoke to Murdoch on the phone after a face-to-face meeting was cancelled on legal advice.

Robert Jay QC, counsel to the inquiry, put it to him: “If a meeting is inappropriate … why is a telephone call appropriate?”

Hunt batted straight back: “Well, I didn’t see the telephone call as a replacement for the meeting.”

Pressed on the issue, the culture secretary admitted that he should not have had the private, unminuted call.

“Having been through the BSkyB bid and the process that I’ve been through, I would take a different view about the presence of officials in conversations that a culture secretary has with media proprietors.”

On Adam Smith

Hunt described Smith as a “very uncomplaining, decent hard-working person” for whom he had the “highest regard”. But he said his former special adviser had to go because of his “inappropriate contact” with News Corporation lobbyist Fred Michel.

The pair’s relationship came under scrutiny after the publication of emails which appeared to show he had given Michel inside information on ministerial thinking over the BSyB bid.

The culture secretary said he “didn’t see Mr Smith in this process as being someone who would be telling me what News Corp thought or telling News Corp what I thought. I saw him as a point of contact … in a very complex process.”

But he admitted Smith, who worked with Hunt for nearly six years, had not been given “any express instructions” as to what his exact role should be.

Hunt blamed the “pressure” that Smith was put under by Michel and a “barrage” of texts and emails.

“We weren’t expecting 542 text messages to Mr Smith … when you do the analysis it looks like Mr Michel was trying to contact Mr Smith five times every working day, which is an extraordinary amount we didn’t anticipate at all,” said Hunt.

“The barrage … ended up pushing him into certain situations and language that wasn’t appropriate,” added Hunt.

“I am sorry for him actually. I was totally shocked when I discovered the level of that contact and I think it explains why he sometimes slipped into inappropriate language.”

Hunt said it was with a “very, very heavy heart” that he had accepted Smith’s offer to resign, having initially told him that he did not think it would be necessary.

“I doubt there’s a minister who worked

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Miliband: Cameron and Hunt face huge questions over News Corp deal

Category : Business

Labour leader says latest Leveson evidence shows culture secretary should not have had responsibility for BSkyB takeover

David Cameron and Jeremy Hunt face “huge” questions over their handling of News Corporation’s BSkyB takeover in the wake of the latest evidence to the Leveson inquiry, Ed Miliband has said.

The Labour leader said this week’s disclosures provided “yet more” evidence that Hunt, the culture secretary, should not have been given responsibility for the deal.

He cited in particular the publication of a memo in which Hunt made private representations to Cameron supporting News Corp’s bid to take full control of BSkyB.

The document, sent just weeks before Hunt was given quasi-judicial oversight of the bid, expressed concerns that referring the bid to Ofcom could leave the government “on the wrong side of media policy”.

Miliband, speaking in Afghanistan where he has been visiting British troops and holding talks with the president, Hamid Karzai, said: “From what I have seen from the material I have read on this, I think we have got yet more evidence that Jeremy Hunt wasn’t the right person to be taking forward the decision about the BSkyB bid.

“He wrote a memo to the prime minister for the bid four weeks or so before taking charge of it and I think it really calls into question David Cameron’s judgment about why he appointed him in the first place to take over this bid.

“Here is somebody who was an advocate within government for the bid, so there are huge questions for David Cameron to answer.

“And there are yet more questions for Jeremy Hunt to answer. I mean, why did he tell the House of Commons that he wasn’t intervening in this issue when he wasn’t responsible for it when, in fact, he was?

“There are just a whole series of mounting questions and we do need answers.”

Hunt is also facing embarrassment over disclosures about his personal dealings with the News Corp lobbyist Frédéric Michel, whom he addressed as “daddy” and “mon ami” in dozens of jokey text messages.

In exchanges released at the inquiry on Friday, Michel responded with flattering comments about the culture secretary’s “stamina” and “great” performances in TV interviews and the Commons.

Hunt also assured Michel, then European director of public affairs for Rupert Murdoch’s media empire, there was “nothing u won’t like” in an upcoming speech.

At least 67 texts were sent between the two men from 21 June 2010 until 3 July 2011, the period when News Corp was seeking to take over the satellite broadcaster BSkyB.

On Friday Cameron defended giving Hunt responsibility for the decision on News Corp’s takeover bid.

“I don’t regret giving the job to Jeremy Hunt. It was the right thing to do in the circumstances, which were not of my making,” he said.

Hunt was given the role after the business secretary, Vince Cable, was stripped of the responsibility over comments made to undercover reporters. The prime minister told ITV’s This Morning: “The crucial point, the really crucial point, is did Jeremy Hunt carry out his role properly with respect to BSkyB and I believe that he did.”

Jeremy Hunt criticised for failure to oversee adviser

Category : Business

Ex-civil service chief tells Leveson inquiry fairness was crucial in BSkyB bid, while Alastair Campbell denies Blair-Murdoch deal

The former head of the civil service, Lord O’Donnell, has told the Leveson inquiry that the culture secretary, Jeremy Hunt, should have known if his special adviser was giving feedback to News Corporation on its controversial £8bn takeover bid for BSkyB.

He told the inquiry into press ethics that ministers and secretaries of state should know exactly what their special advisers are doing, particularly in relation to quasi-judicial decisions. “I would have expected the minister to be clear about what he thought his special adviser should be doing,” he said.

Labour has already called for Hunt to resign after it emerged that his special adviser, Adam Smith, was passing on regular feedback and updates on the culture secretary’s alleged attitude towards the bid. On one occasion, a News International lobbyist was even given a preview of a statement to parliament on the matter.

Asked about the exchanges, O’Donnell told Leveson that if ministers or their special advisers were passing on information to outside interests, they should have been passing it on to all involved, to avert court action from any of the parties. “You should make sure that the same information is passed on all parties in a case. This is not least to protect against a future judicial review, so fairness is absolutely crucial to what happened,” he said.

Hunt has insisted it was not he but Smith who had the back channel of communication with News Corp and he intends to defend his conduct before the Leveson inquiry.

A DCMS spokesperson said Jeremy Hunt would submit his evidence to the Leveson inquiry as planned. “This is a full public inquiry, established under powers granted by parliament, which has cross-party support. It is in the public interest that the inquiry is able to continue its investigation. There is no question of the secretary of state not fulfilling his obligations to parliament – he has answered a number of parliamentary questions on this issue, as well as having made an oral statement in the House.”

Alastair Campbell, Tony Blair’s former press secretary, who was testifying for the second time at the inquiry, defended three phone calls the former prime minister had with Rupert Murdoch in the run up to the Iraq war in 2003.

Campbell said that at the time virtually all the newspapers in Britain were hostile to Blair and the media baron, who was pro-war, might have called him to let him know he was supporting Number 10.

Asked why Blair made time for the calls during a frantic period of diplomacy, Campbell said he wasn’t privy to the conversation but that Murdoch “was kind of signalling that ‘you know, I’m your, kind of, the last one standing” and would support his decision to go to war.

He added: “I think it is a combination of Rupert Murdoch trying to find out what is going on and also probably saying, ‘You know, we’re going to support you on this.’”

He denied that Blair had struck a deal with Murdoch when he flew to Hayman Island, in Australia, to address a News Corp conference before the 1997 election. “The Sun backed us because they knew we were going to win. We did not win because they backed us.”

O’Donnell’s remarks come amid renewed anger in the House of Commons that Hunt has decided to explain himself to Leveson and not first to parliament.

Parliament should be “pre-eminent” in receiving documents and evidence about the behaviour of ministers, the speaker, John Bercow, has told the Commons.

Tory MP Edward Leigh also protested that parliament was playing second fiddle to Leveson. “When we have inquiries like Leveson, they are given everything. Surely the time has come to proclaim this truth, that this House is supreme and sovereign and we should get everything first?”

News International hit back at suggestions that Murdoch suffered “selective amnesia” regarding a lunch at Chequers with Margaret Thatcher to discuss his proposed purchase of the Times and Sunday Times in 1981.

In a strongly worded statement to the Leveson inquiry on Monday morning, Rhodri Davies QC, counsel for the Times and Sunday Times publisher, said “Mr Murdoch has nothing to lie about”.

He said the idea that the deal happened “because of a nod and a wink from Mrs Thatcher” over lunch was “science fiction”.

Davies said the papers would have been shut down by the owners, Thomson, had no buyer has stepped in because of problems with unions and there was no documentary evidence to back up suggestions made by the Leveson inquiry counsel, Robert Jay QC, that Thatcher had somehow made the deal happen.

It had been suggested that Thatcher’s trade secretary, John Biffen, declined to refer Murdoch’s proposed purchase to competition authorities because he had warned Thatcher that a referral would have scuppered the deal.

“That … Mr Biffen paid no regard to the deadline imposed by Thomson, but instead declined to make a referral to the Monopolies and Mergers Commission because of a nod and a wink from Mrs Thatcher who was in turn acting on the basis of an unspoken request from Mr Murdoch … To call this thesis speculation is to use too dignified a term,” said Davies.

He made the statement to counter the opening statement remarks made by Jay last week when he launched the third module of the inquiry, which is dealing with the relationship between politicians and the media.

Davies said it was “against the rules” of the inquiry to make remarks about a witness after he had given his testimony.

He added that it was a “desperate assertion” to say “that Murdoch must be lying when he says that he does not remember anything about” the Chequers lunch.