News Corp. 'train wreck': How bad is it?

As Rupert Murdoch is set to testify before British Parliament Tuesday over the phone-hacking scandal that has roiled politicians, cops and legions of Brits once titillated by his tabloid press, the billionaire's media empire is showing more signs of unraveling.

Shares of Murdoch's News Corp. (NWS) slumped 4.3% Monday to $15.40, continuing a string of losses that have shaved more than $8 billion off the company's market value since July 8 and igniting speculation over how long Murdoch and family members will continue to hold grip over the firm, whose U.S. holdings include The Wall Street Journal, Fox TV and film studio 20th Century Fox.

Late Monday, credit agency Standard & Poor's placed News Corp.'s credit rating on watch and said it may downgrade the company's credit.

"We're watching a train wreck, but is it a few cars or the whole train coming off the track?" says crisis management expert Robbie Vorhaus. "The big question is will the chief engineer be able to stay on board?"

Monday's stock sell-off came after investors responded to the latest fallout over allegations that Murdoch's now-shuttered London tabloid, News of the World, hacked into phone messages of 4,000 potential victims, including scores of celebrities, politicians and other in-the-news Brits, and bribed cops for news tips. The FBI has also opened a review to determine whether the phone messages of families of 9/11 victims in the U.S. were hacked.

On Monday, the scandal forced the resignation of Scotland Yard's assistant commissioner and top terrorism official, John Yates, a day after his boss, Paul Stephenson, quit. Stephenson had hired former World executive Neil Wallis, arrested last week in connection with the criminal hacking investigation, as a media consultant.

Neither Murdoch, former News International CEO Rebekah Brooks nor Murdoch's son James, News Corp.'s deputy COO, are expected to tell the British parliamentary committee that they knew about the phone hacking or its extent.

Still, even if they aren't directly culpable, the damage to News Corp.'s reputation may be too severe to overcome without new management and restructuring. "Assuming it can't be rebuilt — and I think the damage is so great and the wound so deep that it is too late for that — then it is a case of limiting the damage for shareholders by selling some (properties)," says Howard Wheeldon, senior strategist for London-based BGC Partners.

Already, the scandal forced News Corp. to pull its $12 billion bid for full control of satellite-TV operator British Sky Broadcasting.

The scandal has severely dampened James Murdoch's chances of taking over News Corp. from 80-year-old Rupert Murdoch. James Murdoch's future as chairman of BSkyB is also in doubt after investors on Monday called for a corporate governance check of its board. Shares in News Corp. takeover target Austar, an Australian pay-TV operator, fell on fears the $2 billion deal may now fizzle.

"James may appear to be toast," says Wheeldon. "I wouldn't write him off yet, although it does increasingly appear that he will be given over by (News Corp.'s board of directors) as the most natural hostage."

Scandals have caused the ouster of several CEOs in recent years, including Hewlett-Packard's Mark Hurd, who resigned last August after a sexual harassment investigation found improper payments to an HP contractor.

But Rupert Murdoch, who became a U.S. citizen in 1985 and reincorporated News Corp. into a U.S.-based company in 2004, may be tough to dislodge. He built News Corp. into the world's largest media empire and controls 40% of the company's voting shares, making a hostile ouster by his board unlikely, notes Needham & Co. strategist Laura Martin. "He's created a lot of enemies who now see a chink in his armor, but he's a self-made billionaire. If anyone has the stomach for this, it's him," Martin says.

Still, as questions over News Corp. linger, there will be heightened scrutiny of CEO succession plans, says Standard & Poor's analyst Tuna Amobi.

Given Murdoch's voting control, investors shouldn't expect any big changes, says Jeffrey Logsdon of BMO Capital Markets. "Public sentiment is not what is going to be the controlling voice of what happens with corporate governance," he says.

What should investors do? The stock has fallen to arguably cheap levels, given the value of News Corp.'s far-flung holdings, Logsdon says. But the still-unfolding crisis could mean further declines.

There's also danger that the scandal could spread to the U.S., the biggest source of News Corp.'s business. "This is a potential danger zone," Amobi notes.

Says Wheeldon, "We may well view this as being Britain's Watergate, but what happens to Murdoch now will depend on what happens in the U.S. If we are talking about the man, I would say that he was already a shadow of the one who arrived on the scene in 1969. Having lost any remaining vestige of public and political trust, his war is quite definitely over."

Contributing: The Associated Press