Fitch: News Corp.'s Rating Unaffected by Recent Events

NEW YORK--(BUSINESS WIRE)--Recent developments at News Corporation (News Corp.)--including the closure of the company's U.K. tabloid 'News of the World', as well as the increased regulatory scrutiny and delay of potential approval of the proposed acquisition of British Sky Broadcasting Group plc (BSkyB; rated 'BBB+', Outlook Stable)--decrease the level of certainty around News Corp.'s cash deployment going forward, but have no impact on the company's 'BBB+' ratings and Stable Outlook.

Should the company receive regulatory approval for the deal, News Corp. and BSkyB have two months to negotiate on a price before News Corp. can approach BSkyB shareholders directly. In Fitch's view, News Corp. has significant financial flexibility to take the bid materially higher than BSkyB's recent peak trading price of 850 pence/share. The protracted approval process has resulted in a larger than expected cash balance, and Fitch estimates that the price would have to approach 1000 pence/share ($17.7 billion transaction at current exchange rates) before pro forma total leverage would reach 3 times ([x] assuming the company keeps a maintenance cash level of $1 billion-$2 billion). News Corp.'s ratings incorporate gross leverage exceeding Fitch's 3x target from M&A activity, assuming there is a clear deleveraging path to that level over the subsequent 12-18 months. Fitch does not currently anticipate that any potential divestitures necessary for regulatory approval would have a ratings impact. News Corp. had previously agreed to spin off satellite news broadcast network Sky News.

Fitch would view a regulatory block of the BSkyB acquisition as a negative. Absent the transaction, it is likely that a significant portion of the company's $11.8 billion of cash would be allocated for less credit-friendly measures, such as share buybacks and high valuation multiple digital acquisitions. Further, such uses would not provide BSkyB's international revenue diversification and largely recurring revenue base. Nonetheless, assuming such events are financed with cash on hand, they would be unlikely to have a negative ratings impact, although News Corp. would retain materially less financial flexibility within the ratings category. In the event regulatory approval is not granted, News Corp will reimburse BSkyB expenses up to GBP20 million (US$31.8 million).

Separately, the closing of 'News of the World' is not expected to have an impact on ratings. In Fitch's view, News Corp. would likely maintain a 'BBB+' rating without any of its publishing EBITDA (approximately 16% of total), particularly considering the capital intensity of this business. Fitch believes it is unlikely that recent events will taint the company's relationship with advertisers at its other newspaper's or other businesses.

Overall, Fitch's ratings on News Corp. continue to recognize the company's size and scope as one of the largest global media and entertainment companies with solid market positions in broadcast and cable television (TV), filmed entertainment, information services, integrated marketing and direct broadcast satellite (DBS) distribution. Rating concerns center on the secular challenges facing the newspaper industry and local advertising. Fitch estimates global print products account for around 20% of stand-alone News Corp's revenue. Despite these issues, Fitch believes the company's sound liquidity, strong free cash flow generation and increasing level of subscription revenues give it adequate visibility to adjust to a changing landscape.

For additional information please see the full release on News Corporation, dated Jan. 18, 2011, available on the Fitch web site at 'www.fitchratings.com', under 'Corporates'.

Fitch currently rates News Corp. and its subsidiaries with a Stable Outlook as follows:

News Corp.

--Issuer Default Rating (IDR) 'BBB+'.

News America, Inc.

--IDR 'BBB+';

--Senior unsecured 'BBB+'.

Additional information is available at 'www.fitchratings.com'. The issuer did not participate in the rating process other than through the medium of its public disclosure.

Applicable Criteria and Related Research:

--'Analysis of U.S. Corporate Pensions' (Dec. 1, 2010);

--'Corporate Rating Methodology' (Aug. 16, 2010);

--'Liquidity Considerations for Corporate Issuers' (June 12, 2007).

Applicable Criteria and Related Research:

Analysis of U.S. Corporate Pensions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=578365

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646

Liquidity Considerations for Corporate Issuers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=328666

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