Tuesday July 12, 2011

Murdoch fights for control after Brown allegations

By Kate Holton and Georgina Prodhan

LONDON (Reuters) - Rupert Murdoch fought to contain a crisis engulfing his media empire on Tuesday after allegations surfaced that journalists at several of his News Corp papers had targeted former British prime minister Gordon Brown.

Britain's former Prime Minister Gordon Brown at the Govan Old Parish Church in Glasgow, Scotland August 19, 2010. (REUTERS/David Moir/Files)

Murdoch has moved quickly in recent days to try to draw the sting from the rapidly escalating scandal, first closing the 168-year-old tabloid at the heart of the problem and then referring for a prolonged investigation a multi-billion dollar takeover deal that had raised further fears over his media control.

However allegations that other Murdoch titles including the respected Sunday Times were implicated in the hacking scandal, albeit to a lesser degree, threatened to deepen the crisis.

"The closing of the News of the World tabloid, in so far as it was designed to draw a line under this, has transparently failed," media consultant Steve Hewlett told Reuters.

"It's focused attention on the company.

"It's not about the News of the World anymore, it's about the company. It's not a case of a toxic asset but a toxic company. So anything that comes up about another News Corp asset just adds fuel to the fire."

The scandal, which has also included allegations of illegal payments to the police, will also shine a light on Tuesday on the role some of Britain's most senior police officers took and why they failed to investigate the illegal practices earlier.

John Yates, Assistant Commissioner at London's Metropolitan Police, who been criticised for deciding in 2009 not to reopen an earlier phone hacking inquiry, will appear before parliament's Home Affairs Committee.

Also attending will be Andy Hayman, the officer in charge of the original inquiry held after two men, one a News of the World journalist, were jailed in 2007 for intercepting the voicemails of royal officials.

The New York Times reported that five senior British police investigators discovered that their mobile phones also were targeted soon after Scotland Yard opened an initial criminal inquiry of phone hacking by News of the World in 2006.

The disclosure raised questions about whether the police officers had concerns about aggressively investigating the tabloid for fear that their own secrets would be divulged by the paper, the Times said.

"We are not providing a running commentary regarding the investigation," a Metropolitan Police spokesman in London said when asked to comment on the report.

The spotlight on the police however is unlikely to lift the pressure encircling Murdoch and his company, although analysts believe the move on Monday to refer the bid for a full regulatory investigation, and out of the politican arena, was a wise one.

By referring News Corp's bid for the 61 percent of BSkyB it does not already own to the competition regulator, the British government hoped to shield it from a tide of outrage over allegations that reporters for Murdoch's News of the World accessed the voicemails of murder and bomb victims and others.

News Corp shares nevertheless closed down about 7.58 percent at $15.48 in U.S. trading on Monday, for a fall of almost 15 percent in four days, and the stream of allegations continued.

Tuesday's Guardian newspaper quoted a letter from Britain's Abbey National bank to another Murdoch paper, the Sunday Times, which said there was evidence that "someone from the Sunday Times or acting on its behalf has masqueraded as Mr Brown for the purpose of obtaining information from Abbey National by deception".

News International, the British newspaper arm of News Corp, "noted" the allegation and requested more information.

The Guardian also said Murdoch's mass-selling Sun had obtained details from Brown's infant son's medical records.

The Sun revealed in 2006 that Brown's son Fraser had cystic fibrosis. Murdoch's Times quoted a source at News International saying the story had been obtained from a "legitimate source".

Police confirmed to Brown, who was finance minister and prime minister between 1997 and 2010, that his name had been on a list of targets compiled by Glenn Mulcaire, the private investigator at the centre of the voicemail hacking allegations against News Corp's News of the World tabloid.

"The family has been shocked by the level of criminality and the unethical means by which personal details have been obtained," Brown's spokeswoman said in a statement.

U.S. News Corp shareholders suing over the purchase of a business run by Murdoch's daughter filed a revised complaint, saying the British phone hacking scandal reflected how the company's board failed to do its job.

But several major shareholders told Reuters they continue to have confidence in the company and one major investor said the share selloff was overdone.

Donald Yacktman, chief investment officer of Yacktman Asset Management Co of Austin, Texas, the ninth-largest shareholder in News Corp, said the hacking furore "does slightly reduce the predictability of the cash flows, but the impact on the cash flows is minimal at best".

Murdoch, who had already taken a shock decision last week to shut the News of the World, Britain's biggest-selling Sunday paper, and has flown to Britain, had tried to seize the initiative again by withdrawing News Corp's offer to spin off BSkyB's Sky News channel.

The withdrawal of the offer, made to get the deal approved, opened the way for the government to refer the matter to the Competition Commission, whose investigation is likely to take a year or more.

"It's a smart tactical move," said Ian Whittaker, media analyst at Liberum Capital, noting that it also freed the government from a politically unacceptable but apparently unavoidable decision to approve the deal in the current climate.

"It gets the government off the hook. But there's still a very strong chance that in the end it will not go through in the short term or medium term. There are enough players out there that are opposed," he told Reuters.

CAMERON UNDER FIRE

Murdoch's News Corp wields influence from Hollywood to Hong Kong and owns the U.S. cable network Fox and the Wall Street Journal as well as the Sun, Britain's biggest selling paper.

Conservative Prime Minister David Cameron has come under fire for his closeness to Murdoch's media empire; he is a friend of Rebekah Brooks, the News International chief executive who was editor at the News of the World during much of the alleged hacking; and he chose another former News of the World editor, Andy Coulson, as his communications chief.

Coulson, who quit in January over the scandal, was arrested last week for questioning in connection with phone-hacking and allegations that his reporters illegally paid police for information.

Cameron has defended his choice of Coulson and noted that Brown's Labour party also courted Murdoch when it was in power.

(Additional reporting by Paul Sandle, Keith Weir, Tim Castle, Sudip Kar-Gupta, Sinead Cruise, Chris Vellacott, Michael Holden and Karolina Tagaris in London and JoAnne Allen in Washington; writing by Philippa Fletcher and Kevin Liffey; editing by Michael Roddy)