Why Is News Corp Looking To Split?

News Corp. (NASDAQ:NWS) might be considering splitting into two companies, separating its publishing business from its TV and filmed entertainment businesses. ^[1] The company’s management had indicated earlier that some of its shareholders were interested in the split. ^[1] If the split does happen, the publishing company will be one-fourth the size of the remaining video-content focused entity, implying that the publishing business constitutes roughly 20% to News Corp’s stock. This includes its several newspapers in the U.S., U.K. and Australia as well as its magazine publishing business.

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Why News Corp may be looking to do so?

One reason could be the recent phone hacking scandal that affected its publishing business in the U.K. and its image worldwide alongside pushing the stock down. Perhaps the company wants to separate its TV and movie business from this scandal and redefine its image while keeping bad publicity to a separate unit. This way, it can dilute any impact on the value of its remaining businesses, which has suffered in the market due to the stock price depression earlier last year.

Secondly, unlike its movie and TV networks businesses, the publishing business has not shown much strength and perhaps would be better managed as a separate entity. Given the size of its TV and film businesses, these units may attract a higher valuation as a standalone entity in effect unlocking value.

Our price estimate for News Corp stands at about $23, implying a premium of little under 15% to the market price.

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1. News Corp. Mulls Splitting in Two, The Wall Street Journal, June 25 2012 [↩] [↩]