Value of News Corp plunges as investors take fright at scandal

The gathering scale of the crisis surrounding Rupert Murdoch's media empire alarmed investors and sent News Corporation shares sliding yesterday, as the media mogul prepped for a Parliamentary select committee grilling that could determine his future at the helm of the company.

And last night, the credit rating agency Standard & Poor's piled further pressure on the company, saying it could downgrade News Corp's debt. The company has enough cash coming in to cover financial penalties should investigations on either side of the Atlantic turn up criminal activity, the agency said, but there are potentially bigger implications for News Corp.

"More important in our analysis are the risks to the ongoing business [which] include loss of reputation that alienates current and potential clients; forfeit of important business opportunities, such as closure of a profitable publishing business and abandoning of the company's attempt to take full ownership of the UK's largest pay TV operation; and management distraction," S&P concluded.

Yesterday's 4 per cent share price fall would have been even greater were it not for talk that the crisis would weaken the Murdochs' grip on the company and push News Corp into some shareholder-friendly reforms. The stock is now down 17 per cent since it first emerged that News of the World journalists had hacked into the voicemail of missing teenager Milly Dowler.

James Dix, analyst at the Los Angeles-based investment bank Wedbush, said shareholders are nervous ahead of Parliamentary testimony on the hacking scandal today from Mr Murdoch and his son, James, News Corp's deputy chief operating officer.

"What shareholders are concerned about is what was done by management and when, based on what they knew. Were their inquiries reasonably done, and were they diligent in following up what they learnt? If their answers are reasonable, then that would answer shareholder concerns," said Mr Dix.

US Democrats have threatened Congressional hearings into News Corp's actions, and particularly into an allegation in the Daily Mirror that NOTW journalists tried to hack the phones of 9/11 victims. That claim is the subject of an FBI investigation and politicians have also demanded an inquiry into whether paying bribes to UK police officers constitutes a breach of the US's tough Foreign Corrupt Practices Act.

An editorial in the Murdoch-owned Wall Street Journal, accusing rival media groups of "schadenfreude so thick you can't cut it with a chainsaw", increased the sense that the publicity of the scandal will infect other News Corp properties. The company owns Fox News, the right-wing cable channel, and Twentieth Century Fox movie studios, among scores of US brands.

The future of the Murdoch family's control over News Corp has become a topic of debate on Wall Street. Mr Murdoch has not appeared on conference calls with analysts for several months, and there have been rumours that, now aged 80, he is not as well able to concentrate as he once was – another reason his performance in front of MPs today will be closely scrutinised by investors.

Analysts have also pointed to a "Murdoch discount" that explains why News Corp shares have long traded at a lower valuation than peers in the media sector such as Disney and Viacom. Rivals do not have investments in the troubled newspaper industry, which is where Mr Murdoch's emotional attachment remains.

Investment manager Don Yacktman, whose $5.4bn Yacktman Fund is a News Corp shareholder, told Bloomberg News: "Mr Murdoch is going to do what Mr Murdoch chooses to do, unless he is forced to do something else. If he stepped down, probably the stock price would go up, because there's a Murdoch discount."