The board of British Sky Broadcasting will meet on Thursday under pressure to reconsider the future of its chairman, James Murdoch, who has been embroiled in the British phone hacking scandal that has rocked his father’s media empire.
The board meeting is the first since Rupert Murdoch’s News Corp. abandoned a takeover bid for BSkyB because of the scandal at the British Sunday tabloid News of the World.
The British papers fall within James Murdoch’s responsibilities as CEO and chairman of the International division of News Corp.
The meeting is primarily held to sign off on the full year earnings report of BSkyB, which is 39 percent owned by News Corp. But analysts say the board members are likely to discuss James Murdoch’s future with the company and the possibility of a special dividend.
“I think they will both be up for discussion, but I suspect he will retain his position,” Alex DeGroote, analyst at Panmure Gordon & Co., said on Wednesday.
Police probes in the phone hacking scandal are continuing and it is unclear how far they may affect James Murdoch.
“It’s way too early to make a definite decision about James Murdoch’s position as chairman of BSkyB,” said Sam Hart, analyst at Charles Stanley & Co., though he noted market pressure could intensify.
“It well could turn out that while the investigation is going on, and leaks continue to be made into the press about the whole scandal, his position could become almost untenable,” Hart added.
Murdoch is deputy chief operating officer of News Corp., and chairman and CEO of the International Division which oversees assets in Europe, Asia and the Middle East. Because of his role overseeing the British papers and in authorizing large settlements for two hacking victims, the presumption that he is heir-apparent to the Murdoch Empire has come into question.
Father and son endured a lengthy grilling by a House of Commons committee earlier this month, and some of James Murdoch’s testimony was contradicted by Tom Crone, the former legal adviser to News of the World, and former editor Colin Myler.
They said James Murdoch had been aware that hacking by News of the World involved more than two people, contrary to the newspaper’s long-standing claim that only a pair of employees -- who had been convicted and jailed -- had run a rogue operation.
Murdoch stood by his testimony that he was not made aware of that evidence.
Pensions and Investment Research Consultants, Europe’s largest independent proxy agency, has urged BSkyB’s board to replace Murdoch with an independent chairman.
“We have had concerns about weak governance, related party transactions and improper controls at BSkyB since it first listed,” said Alan MacDougall, PIRC’s managing director.
“We recommended shareholders oppose James Murdoch’s election as chair in 2008, and his re—election last year, and would do so again because we consider his relationship to the controlling shareholder clearly compromises his independence.”
Whatever the turmoil surrounding News Corp., analysts say BSkyB could easily afford a special dividend.
Steve Liechti, analyst at Investec Securities, has estimated that BSkyB potentially could return 2.2 billion pounds ($3.6 billion), or 125 pence per share.
Murdoch would have a vote and News Corp. would be the biggest beneficiary of any payout to shareholders
However, Hart notes it would be “a very tax-inefficient way for News Corp. to get capital out of BSkyB.”
In the longer-term, the company could face harsher regulatory scrutiny. That could lead to limits on renewing its broad portfolio of sports broadcasting rights, its dominance of the home movie market and the wholesale prices it charges third parties to broadcast its programs.
There’s even the possibility of an inquiry into whether News Corp. is “a fit and proper” company to hold a controlling interest in BSkyB.
Analysts DeGroote and Hart believe Sky shares have settled in the range of fair value after the takeover premium evaporated, trading at about 720 pence in London on Wednesday.
Shares were trading at 850 pence on July 4, just before it was reported that someone at the News of the World had hacked the phone of 13-year-old murder victim Milly Dowler, potentially interfering with the search for her and with the subsequent murder investigation.
That set off a chain reaction of events. News of the World was shut down and News Corp. gave up on buying the 61 percent of BSkyB shares it doesn’t already own. Les Hinton, CEO of Dow Jones & Co., who formerly headed the News Corp. newspaper group in Britain, resigned as did two senior London police commanders.
Two former News of the World editors -- Andy Coulson, formerly Prime Minister David Cameron’s communications chief, and Rebekah Brooks -- are among those arrested in the investigations of phone hacking and alleged bribery of police officers.