Investors in Murdoch's News Corp forgive hacking

Sun Jan 8, 2012 5:35pm EST
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By Yinka Adegoke

(Reuters) - After six months of scandal and crisis management in the wake of the phone-hacking affair at its UK tabloid papers, shares of News Corp have touched new heights as investors say the so-called 'Murdoch discount' has shrunk but cautioned that it won't completely go away.

In the year's first week of trading, News Corp shares rose to a 52-week record, surpassing the highs it hit just before the July 4 story broke of its News of the World tabloid hacking a murdered British schoolgirl's voice mail. That story seemingly turned the world against founder Rupert Murdoch and his family. The media conglomerate lost nearly a quarter of its market capitalization, some $11 billion, in just four weeks.

The fact that all of News Corp's papers account for less than 3 percent of its operating profits did little to allay investors fears at the time.

That attitude has changed now said analysts as News Corp shares are up nearly 30 percent since the lows of last summer.

"The market is reacting to strong fundamentals in this business, they reported pretty strong numbers in their September quarter, and the Murdoch discount is declining," said Collins Stewart analyst Thomas Eagan.

Richard Greenfield, an analyst at BTIG, agrees saying no one owns News Corp for its newspapers, which most on Wall Street see as more trouble than they're worth.

"Investor reaction has been overwhelmed by the how well their core cable networks and TV business are doing."

Indeed the hacking affair, and the manner in which Murdoch initially handled it by sticking by loyal lieutenants who had ultimate responsibility for the issue, appeared to support the idea of a 'Murdoch discount'. The idea is that Murdoch is seen by some to treat the public company which he controls according to his own shareholder-unfriendly whims. Last summer, that growing scepticism led to the widening of the discount, which has always seen News Corp trade at a valuation below peers like Time Warner Inc and Viacom Inc.   Continued...