News Corp gets credit warning over hacking scandal

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Standard & Poor's warned News Corp. Monday its credit rating could be cut as the snowballing British phone hacking scandal threatened to claim more victims.

S&P placed News Corp.'s BBB+ rating on a negative watch -- a prelude to a potentially costly downgrade -- citing "increased business and reputation risks" from investigations into the widening phone hacking scandal in Britain.

"Since our last research update on July 13, the UK legal process has expanded and pressure from US lawmakers has increased for an FBI probe" into the practices of News Corp's media holdings in both countries, S&P said.

"We see the risk that, if evidence arises sufficient to bring a criminal charge against the company or any current or former employee of the company, then prosecuting authorities in the US could proceed with those charges," S&P analyst Michael Altberg said in a statement.

The warning followed the London arrest late last week of Rebekah Brooks, head of the group's British newspaper arm, News International, and the resignation of Les Hinton, head of Wall Street Journal owner Dow Jones & Co., another essential News Corp unit.

Both were longtime, deeply trusted lieutenants of multi-billionaire Rupert Murdoch, who built and closely controls the sprawling global media power.

Hinton ran News International for 12 years until 2007, spanning the period of many of the phone hacking allegations.

He and Brooks have both denied knowledge of the alleged hacking.

S&P said that due to the scandal News Corp. faced the weakening of its executive team, alienation of clients, and abandoning strategic business opportunities, like the planned full takeover of British broadcaster BSkyB, which was dropped after the scandal broke.

It cited as well an FBI official's suggestion of a possible US probe on the heels of the British investigation into alleged illegal phone hacking and bribery.

"We're aware of certain allegations pertaining to possible phone hacking by News Corp. personnel and we're looking into those charges," the official told Bloomberg Businessweek.

The S&P statement came after News Corp. shares fell 4.3 percent in US trade Monday, and the rater said further drops could impact the company's finances as well, forcing the company to expand a $5 billion share buyback plan announced last week.

The warning was a fresh blow for the group, which controls newspapers from Australia to the United States, the Fox and FX group of television channels, the 20th Century Fox film group and prominent publishers, and holds key shares in units of the Sky satellite broadcasting group.

The furor involving its now-shuttered tabloid News of the World erupted earlier this month with allegations it was involved in tapping the phone of murdered teenager Milly Dowler in 2000-2003.

Subsequent allegations say the phone-tapping was much broader, that police were involved in helping the newspaper's investigations and protecting it, and that bribery was involved.

The country's top policeman and a senior deputy resigned in recent days; several people have been arrested; and 80-year-old Murdoch, his son James, and Brooks have all been called to testify before a public inquiry in Britain.

British Prime Minister David Cameron, himself under pressure to resign for his close Murdoch ties, has warned that anyone found guilty of wrongdoing could be barred from future roles in Britain's media.

© 2011 AFP

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