Billionaire Rupert Murdoch has sold his US$125 million (NZ$177m) investment in scandal-ridden US blood testing group Theranos for just US$1, according to the Wall Street Journal, which is owned by the media mogul.
Murdoch did not join other prominent investors who collectively put US$600 million into the company in 2015 and have been given additional shares in return for a promise not to sue the company or its founder and chief executive, Elizabeth Holmes, it was reported.
While Murdoch will apparently receive some upside if the company recovers from its various setbacks – which include investigations by regulators and lawsuits by investors – the report does not say whether he is retaining the right to sue the company.
The only thing Murdoch has gained from his Theranos investment, besides a harsh lesson on why he should stick to media investments, is a tax loss that will help cushion the tax bill that will be coming this year.
Holmes can take some solace that loss from Murdoch’s investment in her company pales in comparison to the billions that News Corp investors have lost on his US$5 billion acquisition of the WSJ nearly a decade ago.
The downfall of Theranos was triggered by an article the WSJ published that first raised doubts about the claims of the company’s celebrity CEO, who was a billionaire at 30 and being dubbed the Steve Jobs of biotechnology.
The great promise of Theranos is that it could conduct the full range of laboratory tests – ranging from cholesterol to herpes – using just a few drops from a fingertip pin-prick instead of a needle and syringe.
It was expected to revolutionise healthcare affordability, and led Murdoch and other wealthy investors to inject US$632 million in Theranos between 2014 and 2015, which valued the company at US$9 billion.
Holmes owned half the company but that will be significantly reduced after she agreed to hand over her personal stock to Murdoch’s fellow investors in return for their pledge not to take legal action.
“This is an affirmative development for the company, providing a path forward in partnership with employees, investors and other stakeholders,” said Theranos director, Daniel Warmenhoven – the only person to speak on the record to the WSJ.
“Elizabeth elected to contribute her own equity to protect any dilution of shares held by other parties.”
The WSJ report came out just months after the major investment by Murdoch.
The US Food and Drug Administration (FDA) raised concerns within weeks of the report. By January last year, federal regulators were claiming the company violated clinical standards.
By June, Forbes estimated that Holmes’ stake was worthless.
The company has survived, and still had US$200 million in cash at the end of last year. But there are investigations and law suits pending as outsiders try to answer the basic question: Is the company a fraud?
And leading the charge will be Murdoch’s WSJ.
– Sydney Morning Herald