Long Awaited News Corp Split Is Just Around The Corner

News Corp’s (NASDAQ:NWS) shareholders last week formally approved a plan to split the media giant’s publishing assets from its entertainment division. The split, which will take place on June 28th, 2013, will result in creation of two entities – 21st Century Fox and News Corp. 21^st Century Fox will include the company’s media and entertainment businesses while the News Corp will retain newspaper assets such as the Wall Street Journal and the New York Post. ^[1]

Mr. Murdoch stated that News Corp’s size and complexity made it difficult for investors to understand and properly value the company. While the split is a welcome move for both the units, it will be interesting to see how the publishing unit revives in an age where a shift to the web had cut advertising and circulation revenue.

See our complete analysis for News Corp

News Corp Saga

The split was decided last year and one of the reasons it can be attributed to is the U.K. phone hacking scandal of 2011, in which a number of publications were found guilty on several charges. The company didn’t want such scandal to harm its other brands such as “Fox”.

For the fiscal year 2012, the company reported $33.7 billion of revenues and $5.4 billion of profits. Publishing – newspapers such as News International, Dow Jones and Wall Street Journal and book publisher HarperCollins, accounted for $8.2 billion of the revenue and $597 million of profit. Nearly all of the rest, roughly 90 percent of the profit and three-quarters of the revenue came from “Fox”, cable programming such as Fox News, FX, National Geographic, 20th Century Fox, and Sky Italia. Later in Dec, 2012, News Corp reported a loss of $2.2 billion in publishing because of impairment and restructuring costs in 2012. ^[2]

News Corp owns 39% of BSkyB and had offered 700p a share for rest of the stake in 2010, but it was forced to pull its bid in 2011 after the U.K. hacking scandal made it impossible to move ahead with the plan. ^[3] The split should isolate BSkyB from any potential risk attached to the result of the U.K. hacking scandal investigation and may open the way to a new bid for BSkyB by 21^st Century Fox.

Looking Forward

While the spin-off is just around the corner, there will be a lot to cheer for the reborn News Corp as it will start a fresh life with a healthy cash reserve of $2.6 billion, no debt and protection from raiders. ^[4] The publishing company is being spun out without debt because it doesn’t generate enough profit to support interest payments. A $500 million stock buyback plan for the new News Corp after the spin-off is also in place. ^[5] Additionally, both companies will utilize anti-takeover provisions to keep anyone other than the Murdoch family from taking control over more than 15% of either company for at least a year after the separation of the two companies. For 21st Century Fox, it would be an end to long awaited divorce to the troubled publishing unit. It will now be able to focus on further developing “Fox” brand and revisit the BskyB acquisition.

Our price estimate for News Corp stands at $30, roughly in line with the market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. News Corporation Stockholders Approve Charter Amendments Related to Separation of its Businesses, News Corp’s Press Release, June 11th, 2013 [↩]
2. News Corp’s SEC Filings [↩]
3. News Corp pulls out of BSkyB, MediaWeek, July 13, 2013 [↩]
4. News Corp gives publishing company $2.6 billion in cash, Reuters, Mar 8, 2013 [↩]
5. News Corp.’s Publishing Unit Gets $500 Million Buyback Fund, Bloomberg, May 25, 2013 [↩]