LOS ANGELES – News Corp.'s stock rebounded on Wednesday after the media company said it is dropping its $12 billion bid for British Sky Broadcasting. Investors returned their focus to the company's ballooning cash balance, with hopes that it will shed ownership of all its U.K. newspapers as the company tries to contain damage from a phone-hacking scandal.
Shares rose 67 cents, or 4.4 percent, to $16.02 in afternoon trading after the company's deputy chief operating officer, Chase Carey, called off the bid. Carey said "it has become clear that it is too difficult to progress in this climate."
Allegations that News of the World reporters hacked into cellphone voicemails of celebrities, politicians and crime victims caused the Rupert Murdoch-controlled conglomerate to shutter the 168-year-old tabloid.
But that didn't contain the crisis. On Monday, the British government referred News Corp.'s bid for British Sky Broadcasting to Britain's competition authorities, where it would have been tied up for months. Former Prime Minister Gordon Brown also accused other News Corp. newspapers of criminal hacking. That is threatening to envelop The Sun and The Sunday Times. The Sun has denied any wrongdoing.
Nomura analyst Michael Nathanson said in an analyst note that investors were shifting their view back to News Corp.'s strong fundamental underpinnings, which reside in its U.S. cable channels, such as Fox News, its movie studio 20th Century Fox and U.S. broadcast network Fox.
Nathanson said he saw upside to the shares with a target price of $21. He said it was time for the company to consider pulling out of the U.K. newspaper business. All of News Corp.'s newspapers, including the U.K. newspapers and The Wall Street Journal, accounted for less than 3 percent of its $1.06 billion in operating profits in the most recent quarter.
"Perhaps this rebuke will force News Corp. to reconsider its ownership of U.K. newspapers," he said in the note. "We hope this is a turning point for the company's strategy and asset allocation as the ownership of highly inconsequential newspaper assets has forced the dropping of a strategically important asset."
As of March, News Corp. had amassed $11.8 billion in cash in preparation for the BSkyB deal. Assuaging investor concerns about what it would do with the cash if the deal was delayed or called off, the company decided Tuesday to raise the amount of shares it buys back from the market to $5 billion over the next 12 months, up from a planned $1.8 billion.
Now that the deal is off completely, investors are looking for more insight into new ways the company will spend its money.
"We now see investors' focus reverting to potential deployment of cash that we see approaching $15 billion," said Standard & Poor's equity analyst Tuna Amobi, who maintained his "buy" rating on the shares.
As for BSkyB, in which News Corp. still holds a 39 percent stake, shares closed 2 percent higher at 705 pence ($11.35), after trading around 680 pence when News Corp. said it was pulling its bid.
In the immediate aftermath of the statement, the shares tanked to a low of 665 pence, but that knee-jerk sell-off proved short-lived.
Speculators like hedge funds — who were looking for windfalls from the prospect of a higher News Corp. offer — are pulling out. At the same time, analysts said new investors are looking to buy up what has become relatively cheap stock for a company that is highly profitable.
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