Business
News Corp. agreed last month to pay $500 million to Valassis Communications Inc. to settle claims that its tactics caused $1.5 billion in damages. The settlement kept the spotlight of a trial off allegations that News Corp. employees threatened smaller rivals, destroyed signs in supermarkets and broke into computers to steal trade secrets.
Some of the same claims are to be made at an April 12 trial involving Insignia Systems Inc. The Minneapolis-based marketer of in-store promotions seeks unspecified damages from New York- based News Corp.s News America Marketing, which contributed to its divisions $414 million operating loss in the quarter ended Dec. 31 due to the payout to Valassis.
“News America over the years has beat up on smaller rivals,” said Insignia Chief Executive Officer Scott Drill in an interview. “Now justice is prevailing.”
News Corp., of which Murdoch is chairman and CEO, and Livonia, Michigan-based Valassis compete in newspaper coupons for consumer items including cereal, soap and cookies. Such coupons are distributed to as many as 70 million households weekly, according to Valassiss data in a 2006 lawsuit. In stores, News Corp. competes with Insignia to run promotions for food companies such as Sara Lee Corp., putting signs on shelves, ads in shopping carts and coupons at checkout.
$353 Million Business
Murdoch relies on the coupon business, which last year had $353 million in operating income, to help fund new ventures such as Fox Business News and Sky Italia, said Barclays Capital credit analyst Hale Holden.
“Avatar,” historys highest-grossing movie, may bring about $322 million of operating income to News Corp.s Twentieth Century Fox studio in coming quarters, estimated Soleil Securities analyst Alan Gould. Anthony DiClemente of Barclays Capital estimated $676 million and Jeffrey Logsdon with BMO Capital Markets pegged its earnings at more than $700 million.
Murdoch wasnt available to comment, said News Corp. spokeswoman Teri Everett.
“News America Marketing has been a highly profitable business for us for decades,” Everett said in an e-mail. “We fully support its management.”
Of 22 equity analysts rating News Corp.s stock, there are 10 “buys” and 11 “holds;” one analyst has a “sell,” according to Bloomberg data.
The $500 million payment to Valassis included $300 million owed from a 2009 trial verdict against the same News Corp. unit.
Media Recession
The payment was recorded in the quarter ended Dec. 31 as News Corp. rebounded from the media recession and had $7.3 billion in cash. Earnings were 10 cents a share, compared with a $2.45-a-share loss a year earlier, the company said on Feb. 2.
In its lawsuit, Valassis alleged News Corp. used its “market dominance” in stores to try to corner the newspaper coupon business.
Sara Lee chose to distribute newspaper coupons through Valassis. News Corp. retaliated, forcing it to pay more for in- store promotions, according to depositions of former Sara Lee executive Debra Lucidi taken for the 2009 Valassis trial.
Mike Cummins, a spokesman for Downers Grove, Illinois-based Sara Lee, declined to comment.
Stranglehold on Market
According to Valassiss complaint in the now-settled case, News Corp. gained a “stranglehold” over at least 80 percent of the in-store advertising market, restricting competition in more than 16,200 supermarkets and 17,100 drug stores.