NEWS CORP has confirmed it will most likely split off its publishing assets from its more profitable entertainment business but that would not mean chairman Rupert Murdoch is stepping away from his much-loved newspaper business.
Any separation could create a “more Australian” newspaper business, one analyst said, and already one commentator has raised the possibility that Lachlan Murdoch could be at its helm.
News Corp, parent company of Australia’s News Ltd, confirmed on Tuesday that its executives are considering separating into two distinct, publicly traded companies.
A split would likely separate News Corp’s 20th Century Fox movie house and Fox broadcast and cable TV businesses from the newspaper and books operations that include The Wall Street Journal, The Times of London and The Australian newspapers and publisher HarperCollins.
Such a separation would also see two companies with vastly different earning abilities created: News Corp’s total entertainment division earnings before interest and taxation (EBIT) topped $1.3 billion in the third quarter of 2011/12, while the publishing business accounted for a tenth as much.
Commonwealth Bank (CBA) equities analyst Alice Bennett said, in a note to clients, that a company split would be a positive for News Corp (ASX code NWS) by “removing the Print negative perception and drag on NWS’ valuation and share price”.
Ms Bennett said the entertainment company would “clearly be attractive” and estimated a value of around $58.8 billion or $23.77 per share, while the “less attractive” publishing company was valued at $4.3 billion or $1.74 per share.
News Corp shareholders and, reportedly, senior executives, have been unhappy with the drag the newspaper business has represented, causing News Corp to be valued lower than rival entertainment groups such as Disney.
News Corp chief operating officer Chase Carey reportedly told a conference in February that there was “an awareness” at News that the company’s shares would increase in value if it did not own newspapers.
While Mr Murdoch has ruled out selling off newspapers in the past, The Wall Street Journal reported on Tuesday that he had recently “warmed to” the spin-off idea.
BBY analyst Mark McDonnell said publishing had lower revenue growth and higher costs than the rest of News’ business.
It has also been a source of trouble, causing News to abandon its bid to take full control of UK pay TV business BSkyB after the News of the World phone hacking scandal.
“It’s become a problem child,” Mr McDonnell said.
“Most of News Corp’s profits in this division come from their Australian newspapers,” he said.
“A separately listed company will be a more Australian business.”
Murdoch biographer Michael Wolff, writing in UK newspaper The Guardian on Tuesday, characterised the announcement as News Corp “spurning (Mr Murdoch’s) newspapers, and also his leadership” and a victory for Mr Carey, who favours the entertainment businesses.
However another analyst said the restructure, which would see Mr Murdoch retain a controlling stake in both businesses, would be a way for the media mogul to keep News shareholders happy and maintain his newspaper holdings.
Mr Wolff also wrote that “rumours were circulating” that Lachlan Murdoch, Mr Murdoch’s eldest son, “might be tapped by his father to head the new newspaper company”. – AAP
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