Shareholders Sue News Corp. as Its BSkyB Deal Gets Rockier

The conglomerate is accused of opening itself up to "a giant public relations disaster"

A group of shareholders are suing Rupert Murdoch's News Corp. for "failing to exercise proper oversight and take sufficient action since news of the hacking first surfaced at its subsidiary nearly six years ago." The law firm Grant & Eisenhofer filed a legal complaint in Delaware on Monday morning as an extension of an accusiotion of "rampant nepotism" in March, when Murdoch acquired his daughter's production company Shine for £415 million. Jay Eisenhofer, the lawyer representing the shareholders, told The Telegraph, that the complaint addresses a "piling on of questionable deals, a waste of corporate resources, a starring role in a blockbuster scandal, and a gigantic public relations disaster."

"Gigantic public relations disaster" is almost an understatement for the media giant's current situation. However, as they scramble to clean up the mess left behind by the News of the World's phone hacking habits, News Corp. executives are making progress in their $14 billion takeover of the BSkyB television empire. They're being tricky, though. The jargon-packed update on is difficult to decipher--in fact, it's almost as if the News Corp. public relations team wrote the press release in twisting, industry-specific terms in order to cloak the full story. The full story, before we continue, this Reuters newsflash explains pretty well: "Media giant News Corp has paved the way for the British government to refer its proposed deal on buying BSkyB to the Competition Commission, potentially defusing a political row, but setting itself up for long delays."

In other words, the deal is on, and News Corp. is providing a sneak peek up their ace-laden, lawyer-heavy sleeves. Jeremy Hunt, the Secretary of State for Culture, Media and Sport, had proposed in March that News Corp. could "spin off" Sky News into a separate company with a separate board to ease antitrust worries. News Corp. pledged to do so, but with today's announcement, has withdrawn that pledge, a move that will send the deal to the Competition Commission--effectively, the British version of the Federal Trade Commission--for review, a process that could take months. Rupert Murdoch's company said in their cryptic press release, "News Corporation continues to believe that, taking into account the only relevant legal test, its proposed acquisition will not lead to there being insufficient plurality in news provision in the UK."

By opening their kimono to the the Competition Commission, News Corp. not only shows its willingness to cooperate with government regulators but also buys itself some time to let the dust settle from the phone-hacking investigation. Reuters followed up their breaking news alert with a longer report that, "Lawyers see major hurdles to blocking BSkyB deal, delays." The article explains further how, despite their ballooning scandal, News Corp. is actually in good shape for the takeover from the regulators' standpoint:

British regulators could struggle to find new grounds to halt a proposed takeover of pay-TV broadcaster BSkyB by Rupert Murdoch's News Corp media empire, but lawyers say the multi-billion-dollar deal may face severe delays. …

"As far as the competition issues are concerned, nothing really has changed," said Cyrus Mehta, head of the EU and Competition group at law firm Nabarro, noting this could make it difficult for the regulators to alter their original findings.

In fact, the main clause in British media law that could block the deal--that BSkyB's new owner is not "fit and proper"--is overwhelmingly vague. Until the courts actually convict someone at News Corp. for a crime, the British regulatory body Ofcom will have a hard time enforcing this requirement:

"There is no definition of what "fit and proper" person means," said Choueka. "There have never really been any instances where Ofcom have looked at this in any great detail."

Ofcom would have to "demonstrate the links between the people running News Corp and the people involved in phone hacking," Choueka said -- a tough call without a conviction.

Ed Miliband, the Labour party leader and outspoken critic of News Corp., expressed discontent with the state of affairs and scolded Prime Minister David Cameron for announcing a phone hacking investigation in a Friday press conference without involving Parliament. "The culture secretary has no direct responsibility for the judicial inquiry that [Cameron] talked about," Miliband said on the floor of the House of Commons. "[Secretary Hunt] has no direct responsibility for the police and the relationship with the media. But he has been left to carry the can by a prime minister who knows there are too many difficult questions for him to answer. It is an insult to the House and to the British public."