Despite Trouble, News Corp Outdistances Disney And Time Warner

The market’s perception is that News Corp (NYSE: NWS) has been sullied as an investment following the investigations into phone hacking and bribes by News of the World reporters and editors. In fact, over the last year, even with sell-offs in the last two days, News Corp has held it own against rival shares in Walt Disney (NYSE: DIS) and Time Warner (NYSE: TWX). News Corp’s stock climbed 25% during the last year. Time Warner’s increased barely more than 20%, and Disney’s rose 17%.

Wall St. is concerned that Rupert Murdoch’s company will lose its bid to buy the shares it does not own in satellite company BSkyB. Total control of BSkyB would add considerably to News Corp’s cash flow and earnings. The scandal at News Corp’s largest UK newspaper has caused the BSkyB deal to be referred today to The Competition Commission, the UK’s regulatory body that handles mergers and acquisitions when issues of monopoly arise. The transaction was to close as early as next week. Now the process, if successful for News Corp at all, could take another six months while the Commission reviews the deal.

News Corp also abandoned plans, which might have made an approval by the UK regulators easier, to include a spinoff of BSkyB’s Sky News channel as part of the deal. The British government is concerned that too much of the UK news media would be concentrated in News Corp’s hands if BSkyB kept the news operation. Murdoch has decided that he will not make that concession since the UK government will delay a close of the transaction, if it approves it at all.

Investors will probably look beyond the BSkyB setback and UK newspaper investigation to the tremendous earnings power of News Corp. Its Fox news, TV and film operations are as profitable as any studio and cable TV program operations in the U.S. Fox easily stays ahead of CBS (NYSE: CBS) and ABC, which is part of Disney, during most hours of the morning, midday, and prime time. Analysts believe that the Dow Jones financial news unit will add sales because advertising has recovered since the recession and The Wall Street Journal has set up a strong online paid subscription unit.

The mess with BSkyB and the News of the World is the lead headline in most of the business press today. Investors clearly think there is a reasonable chance that these storms will pass.

Douglas A. McIntyre