News Corp.: A Healthy Company With One Great Big 'But'

Image by AFP/Getty Images via @daylife

To talk about News Corp. right now while setting aside anything to do with phone-hacking brings to mind that old joke: “But other than that, how did you enjoy the play, Mrs. Lincoln?”

The scandal and all of its fallout will be front and center at the company’s annual meeting in Los Angeles today. A large number of shareholders, acting on the advice of investor groups and advisory firms, may vote against chairman Rupert Murdoch‘s hand-picked board of directors, including Murdoch himself and his two sons, James and Lachlan. While the Murdoch family’s iron grip on Class B voting shares all but ensures those “no” votes will carry only symbolic power, at least one analyst thinks they could force real change. “Boards do tend to respond to pressure when it’s significant enough,” says Cowen & Co.’s Doug Creutz. If the “no” vote rises to 20 or 30 percent of the total — ie. one-third or one-half of the non-Murdoch-controlled vote — “you could see a scenario where the board starts pushing for a more explicit succession plan, one that might not involve James.”

Without a doubt, Murdoch’s fiercest critics will attempt to use the meeting as a stage. British Parliament member Tom Watson, who bought News Corp. shares just so he could attend, has already said he plans to go public with fresh evidence of wrongdoing during his turn at the microphone. Security will be on guard for stunts like the pie-thrower who disrupted Murdoch’s testimony to Parliament.

Yet those who are willing and able to tune out the phone hacking din will hear something else entirely: the sounds of a media company that’s in enviably good shape. Since the scandal erupted in July, analysts like Nomura’s Michael Nathanson and BTIG’s Rich Greenfield have been consistently bullish on News Corp. In analysts’ view, public and investor pressure has the potential to correct what they don’t like about the company — Murdoch’s fondness for big, problematic acquisitions; his attachment to low-margin or money-losing print newspapers; his reluctance to clarify long-term succession plans — while leaving its attractive fundamentals intact.