News Corp May Split Sooner Than You Think

News Corp. (NASDAQ:NWS) is looking to spin off its publishing business as early as December 31, 2012. ^[1] The company’s management had indicated earlier that it plans to split this business as some shareholders showed interest in doing so. However, it appears that News Corp wishes to accelerate the timeline in order to please the shareholders and showcase the value that lies in the spin-off ahead of the new year.

The publishing company will be less than one-tenth the size of the remaining video-content focused entity, implying that the publishing business constitutes less than 10% to News Corp’s stock as per our estimates. This includes its several newspapers in the U.S., the U.K. and Australia as well as its magazine publishing business.

See our complete analysis for News Corp

Makes Sense To Spin Off The Troubled Business

The recent phone hacking scandal affected News Corp’s publishing business in the U.K. and its image worldwide. Even though publishing is less than 10% of News Corp’s stock, its financial impact on the company’s market value was a lot more than that could be justified by its fundamentals. New Corp wants to separate its TV and movie businesses 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.

Furthermore, 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. The publishing business is on a secular decline as print media is being replaced by digital media which hasn’t been monetized yet on similar proportions. A lot of digital content is available for free while print content has been traditionally distributed based on subscriptions or individual purchases.

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 $28, implying a premium of more than 15% to the market price.

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1. Rupert Murdoch to split News Corp early to limit fallout from hacking scandal, The Telegraph, Dec 2 2012 [↩]