WRAPUP 1-Murdoch battles to save UK paper business as probes loom

Thu Jul 14, 2011 2:06am EDT

* News Corp concentrating on mounting legal, political woes

* Focus elsewhere could put off any plans to sell papers

* Crisis spreading to U.S., lawmakers urge probes

* Australian PM says may review media laws

By Paul Thomasch and Rob Taylor

NEW YORK/CANBERRA, July 14 (Reuters) - Rupert Murdoch, fighting to bring under control a crisis that has cost him a $12 billion deal, is unlikely to rush into the sale of the newspaper business at the heart of the hacking uproar in Britain.

The shockwaves of the scandal are spreading globally. Some U.S. lawmakers called for an investigation to see if the Australian-born billionaire's News Corp broke any American laws.

Australia's prime minister said her government may review media laws.

"To see some of the things that have been done to intrude on people's privacy, particularly in moments of grief and stress in the family lives, I've truly been disgusted to see it," Julia Gillard told Australia's National Press Club.

"I anticipate that we will have a discussion amongst parliamentarians about this, about the best review and way of dealing with all of this," she said.

U.S.-based News Corp has been rocked by a series of scandals alleging journalists and hired investigators working for its flagship News of the World tabloid hacked into the voicemails of thousands of people, from victims of notorious crimes to families of soldiers killed in the war in Afghanistan.

The allegations, which include bribing police officers for information, galvanised British lawmakers across parties to oppose a man long used to being courted by the political elite.

Australian-born Murdoch shut down News of the World in a move to contain the fallout from the crisis, which included a 15 percent slide in News Corp shares, and withdrew his bid for broadcaster BSkyB on Wednesday.

A sale of News International, the group's UK newspaper arm, could help Murdoch put the crisis behind him. But that may not be his most immediate focus.

Instead, the media baron is primarily focused on sorting out immediate political and legal issues faced by his company, family and staff, a source close to the situation said.

Next week, Murdoch and his son, James Murdoch, will be called to answer questions by a parliamentary committee looking into the saga at the News of the World, which was shut down in disgrace on Sunday.

News International Chief Executive Rebekah Brooks has also been called to parliament.

U.S. politicians are taking notice, too.

Three prominent U.S. lawmakers called on federal officials to investigate whether News Corp broke any American laws, meaning Murdoch could potentially be battling investigations on both sides of the Atlantic.

The scandal could contaminate News Corp's Wall Street Journal, one of the most-respected newspapers in the United States, and Murdoch's broader media business in the United States.

"I think the UK hacking scandal has the potential to damage the Wall Street Journal's reputation," said Jay Ottaway, whose family owned 6.2 percent of Wall Street Journal publisher Dow Jones & Co before it was sold to News Corp.

"It wouldn't surprise me at all if others call for hearings and investigations, and perhaps they may even be held. There's going to be a lot of activity around this issue," said Jeffrey Silva, analyst with Medley Global Advisors.     News Corp executives, meanwhile, have found themselves suddenly thrust into the spotlight. They include Les Hinton, who headed up News International during the scandal and now runs Dow Jones, and Chase Carey, News Corp's deputy chairman.

Carey would be first in line to become chief executive of News Corp if James Murdoch needs to be sidelined.     Rupert Murdoch has been steadfast in his refusal to dump his beloved newspapers. But the scandal has already taken several unexpected turns, so it may eventually force his hand, several industry bankers said.

The latest twist was News Corp's decision to abort a $12 billion deal to take over broadcaster BSkyB . It retains a 39 percent share of the highly profitable pay-TV network.

Even if News Corp decided to sell any newspapers, some speculated the group may struggle to find any buyers.

"I don't know anyone who would want to buy them with the cloud hanging over them," said a banking source. (Additional reporting by Michael Perry in Sydney; Editing by Neil Fullick)