News Corp stock is up today as Rupert Murdoch testifies before Parliament. The obvious connection to make is that Murdoch's testimony must be going well so that's why the stock is up after being dumped last week. However, things are not so simple.
The US stock market opened at 9:30 am EST. At that time Murdoch had not even begun to testify but the stock gapped up on the open more than 4%. Since the opening minutes the stock has ranged with gains of between 4% and 5%.
So who is buying News Corp stock? Is this a sudden rush by the public and by financial institutions who are sure the worst is over? Perhaps. But there's a much more obvious buyer with a strong vested interest in timing a stock rise with the testimony of the Murdoch's before Parliament. That buyer of course is News Corp and Murdoch himself.
What evidence is there that News Corp and/or Murdoch are helping to elevate the stock by being large buyers today? While it's not possible to know with certainty we do know that News Corp intends to put a massive amount of cash into their stock. In response to the scandal News Corp last Tuesday announced a huge 5 Billion Dollar stock buy back program. It's easy to read that and believe the buy back money has already been used but that is not actually how buy backs typically occur. They call it a "buy back program" for a reason. The purchases are spread out over time and buys occur whenever the company thinks the price is too low. Purchases also happen when the company believes propping up the stock can help change the stocks perception. That's just what is likely happening here. News Corp knows that by creating a positive around the Murdochs testimony they may be able to change the narrative of the story and make investors believe the worst is now over.
Would that money be enough to swamp the market and cause the stock to gap up? It sure would. The $5B is itself 12% of the companies stock. That's an enormous percentage to be putting into the stock.
Let's do the math on how much of the buy back it would take to move the stock on any particular day. Looking back over the last year the stock has generally traded a couple million shares a day with a high point of 8.37 million shares back on February 11, 2011. Since the scandal broke the highest volume day was last Wednesday when 19 million shares traded and the stock rose as high as 17. Even on the biggest volume day of the year the total dollar amount traded was less than the high price of $17 * 19 million shares which equals $323 million.
That's right. News Corp could have bought every share on the highest volume day using less than 1/15th of the total buy back dollars they allocated.
Thus, News Corp certainly could be behind much of the buying today. They have the incentive and they have the dollars. They'd be fools to not use this opportunity to buy.
To help in that effort one of the disgraced ratings agencies put out a timely press release this morning to coincide with Murdoch's testimony. Moody's had this to say about News Corp:
"Moody's gains comfort that the rating and stable outlook should be unaffected based upon the companies diversity, the minor contribution to operating performance of the affected operations, and due to the company's strong liquidity and credit metrics," the service said in a statement. Moody's added that at this time, it does not see News Corp.'s other businesses suffering materially "from loss of confidence" by advertisers due to the hacking scandal in the U.K"
Moody's believes everything is rosy for News Corp and "gains comfort" from the fact that the scandal is so minor. Apparently Moody's is so confident that the occasion of Rupert Murdoch being grilled by Parliament, against his will, was no cause for concern.
The other major rating agency, S&P, was not so sanguine about News Corp. Just yesterday S&P warned they may be forced to downgrade News Corp. Why the difference of opinion? Here's what S&P had to say:
Standard & Poor's said it was concerned by "the increased business and reputation risks associated with broadening legal inquiries" into possible criminal activity by News Corp. journalists and executives, the statement said."In our opinion this and other recent developments materially increase the reputational, management, litigation and other risks currently faced by News Corp. and its subsidiaries," Standard & Poor's credit analyst Michael Altberg said in his company's release.
The statement also noted the company's executive structure has been weakened by a series of resignations.
Criminality. That word didn't appear in Moody's rosy forecast. Neither did Moody's mention the risk to News Corps reputation or the possibility of broadening legal inquiries. Investors can choose who to believe but I'd certainly give more credence to S&P's more detailed critique than I would the content-less affirmation provided by Moody.
Of course, nothing is transparent and I can't prove that a) The News Corp stock buy back is a major reason that the stock is up today and b) Moody's press release is a worthless piece of happy talk designed to help the Murdochs. But I'd sure be surprised if I was proved wrong.
2:26 PM PT: As expected, the rise of the stock price is being explained by some as "the market" rendering a verdict on the Murdoch's testimony before Parliament. Via Andrew Sullivan, here are a couple examples:
Andrew Exum tweets:
Again, the Twitterati seems to think the Murdochs are making asses of themselves today, but the market disagrees strongly.
Piers Morgan tweets:
News Corp stock price has risen throughout the hour. Not, I suspect, how the MPs hoped things might go from their interrogation.
Also, I see this diary has been picked up by Community Spotlight. Thanks!