News Corp. closer to spinning off newspaper division

The Wall Street Journal | Bloomberg Businessweek | Dealbook
Rupert Murdoch’s News Corp. is considering splitting into two companies, say unnamed sources in a report published early Tuesday by The Wall Street Journal, which is owned by the company, followed by an official statement. Such a split, which could be announced this week, would separate News Corp.’s low-flying publishing assets, including its scandal-riddled British papers, from its profitable TV and film divisions, Martin Peers, John Jannarone and Anupreeta Das report:

The entertainment assets make up by far the bulk of the company, contributing three-quarters of the $25.34 billion in revenue for the first nine months of the fiscal year. Those assets accounted for roughly 90% of the operating profit in that period.

News Corp.’s publishing division (highlighted in yellow) includes The Wall Street Journal, the New York Post, UK and Australia newspapers, and book publisher Harper Collins. That part of News Corp. could be worth $6.4 billion, the Journal reports, though it netted only $458 million in profits from July 2011-March 2012.

Cable network programming, including the Fox News Channel,  contributes a $2.5 billion profit to News Corp.’s bottom line (see left). In May, Fox News CEO Roger Ailes told an audience at the University of North Carolina at Chapel Hill, “This year our profit will be roughly $1 billion. You have to make a profit to employ journalists.”

In Britain, a newspaperless-News Corp. may be able to hold on to its stake in the satellite television company BSkyB, Peers, Jannarone, and Das write. The Murdoch family would retain control of both companies. Rupert Murdoch, they write, has opposed such a move in the past but “has recently warmed to the idea.”

Such a plan might also please investors, Anthony Palazzo and Amy Thomson write in Businessweek:

“I don’t think most corporate shareholders want to have exposure to U.K. newspaper assets,” said Alex DeGroote, an analyst at Panmure Gordon. “But I think Rupert Murdoch wants the assets, so there’s a conflict between what shareholders want and what Rupert wants, so one way around that is de-merge them.”

There have been rumors of massive layoffs are coming to News Corp.’s Australian newspapers since rival Fairfax Media announced large cuts.

Shareholder Ian Harding told Deal Journal Australia that investors there would favor the change:

“Generally speaking, spin-offs are good news because a sum-of-the-parts is often greater than the whole and they tend to liberate hidden value and sometimes generates corporate appeal for separated vehicles,” he said.

News Corp. stock closed up in Australian trading and is up about 7 percent in U.S. trading compared to Monday’s close.

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