Haim Saban's demand that Rupert Murdoch buy out his stake in Fox Family Channel took a toll on News Corp.'s stock last week.
Concerns over Saban's decision to exercise his so-called "put" option-and the subsequent decision by Standard & Poor's to downgrade its outlook on News Corp.-caused the price of shares in the global media giant to tumble in Australia, its home base. Last Wednesday the stock hit a low for the year.
News Corp. shares did make a slight recovery in Australia later last week. That came after the company issued assurances that it would not jeopardize its investment-grade credit rating over the Fox Family situation.
"The one certainty as we enter the negotiations on Fox Family is that News Corp. will not risk its credit rating," News Corp. spokesman Andrew Butcher said. "We have a range of options to avoid any risk."
Saban, who owns 49.5 percent of Fox Family Worldwide Inc., said in December he would require partner News Corp. to buy his share in the company "at a price based on the fair market value of the company of as Jan. 31."
Both Saban and News Corp. have hired investment bankers-Morgan Stanley Dean Witter and Bear Stearns & Co., respectively-to calculate valuations for Fox Family Worldwide. The firms have until Jan. 31 to render their individual valuations.
If the numbers are within 10 percent of each other, both sides will average their two prices. If the difference is greater than 10 percent, a third investment banker will be brought in to do a valuation.
Saban has valued Fox Family Worldwide at $6 billion. When the company's $2 billion in debt is factored out, Saban argues that his stake would be worth $2 billion.
Shortly after Saban announced he would exercise his put option, S & P downgraded its outlook on News Corp. to "negative" from "stable."
"A buyout for cash, on top of the $1.4 billion to $1.5 billion of Fox Family debt that would be consolidated on News Corp's balance sheet, could put pressure on News Corp.'s ratings," the ratings agency wrote in announcing its downgrade.
However, that S & P report did note that News Corp. had three options it could turn to stem an increase in its debt: use some stock to pay Saban; sell Fox Family Worldwide's assets entirely; or sell Saban's stake to a third party. News Corp. is rated BBB-minus, just above junk-bond level.
Investors are worried that News Corp's desire to acquire DirecTV Inc. from Hughes Electronics Corp. would be hamstrung if it is forced to acquire half of Fox Family Channel for cash.
Saban reportedly decided to go full steam ahead with his put option when he saw the hefty $3 billion price Viacom Inc. paid for Black Entertainment Television. Fox Family, which Saban and Murdoch acquired from evangelist Pat Robertson, has been struggling for the past two years to find the right programming formula to attract contemporary families.
Saban, who is chairman of Fox Family Worldwide, has two years left on his employment contract with News Corp.