Is News Corp a Bargain?

For those of you who have missed it, there is an enormous uproar in the UK over the hacking by reporters at the News of the World into the cell phones of celebrities and others in the news. The controversy simmered for months while the issue was whether or not phones of celebrities had been hacked. Then a few weeks ago, all hell broke loose when it came out that the phone of a young woman who had been murdered had also been hacked. It was as if the dam had finally been broken. News Corp. which owns the News of the World shut that paper down and accepted the resignation of a number of key executives. Then News Corp. abandoned its bid to take over the entire B Sky B satellite broadcast system in the UK. Today we learn that the head of News International Group in the UK was arrested (although it was for things she had done as the editor of News of the World). Rupert Murdoch, chairman and controlling shareholder of News Corp. is to be grilled by a parliamentary committee in London this week.

More than all of the actual news that has come out, there is an endless stream of gloating by Murdoch's enemies. These folks are revelling in Murdoch's pain. Many see it as a chance to hurt News Corp. for years to come. Even in the USA, where there has been not even a scintilla of evidence that News Corp. has acted improperly, there have been congressional calls for investigations as well as media figures coming close to melt down in joy at the travails of News Corp.

While all this has happened, the stock of News Corp. has sunk on the market. So the obvious question arises: is News Corp stock a bargain at the moment? My answer is no.

There is no question that the value of the News Corp. properties is there. Indeed, based upon the normal multiple among media giants like Time-Warner or CBS, News Corp. stock should be much higher than it currently is. But this is not a time to look at the normal multiple. right now, no one outside the company knows if there is any problem that will surface with regard to the activities outside the UK. Certainly, the enemies of News Corp. entities like Fox News are legion. Soros funded Media Matters exists solely to wage war on Fox News. Needless to say, Media Matters seems to be having daily excursions into ecstasy as it contemplates the possibility that Fox News somehow hacked cell phones like those crazies at the News of the World in London. Indeed, for groups like Media Matters, the truth here matters less than the the chance to conduct a massive guilt by association attack on Fox News.

It is these enemies and the fact that they now have a smidgen of wrongdoing by News Corp UK subsidiaries that leads me to stay away from the stock. Oh, and do not forget to add in that there is the undying hostility of the Obama administration towards News Corp. There are just too many Obama bureaucrats who would love to hurt Fox New and News Corp. whether or not there is any basis to act.

I have been a shareholder in News Corp for well over a decade. For a long time, it was the largest media holding in the portfolio. That changed last week. I no longer consider it prudent to hold the stock. There is just too much risk injected into the company by the events in the UK.

For those of you who do not mind higher risk, the value of the company's assets are still there underpinning the stock. For those of you who do not want to worry about what the next headline says, I would stay away.

Disclosure: I am long News Corp. stock, but have reduced holdings in the portfolio by over 85% from the high. I expect to divest completely in the near term if the scandal does not move towards a quick resolution.