Shares of News Corporation (NWSA: Charts, News) closed up +1.68 or +8.34 percent to $21.76 per share on Tuesday, after news that the company was splitting into two separate entities. The split would separate the company’s publishing interests from its film studio and broadcasting businesses. Control of both companies would be retained by CEO Rupert Murdoch, who along with his family owns a 40 percent controlling interest in News Corp.
According to some analysts, the split would leave the publishing business worth approximately $3 billion, while the entertainment company, which now accounts for 90 percent of News Corp.’s profits, would be valued at roughly $50 billion. The split would be made as a spin off, with current shareholders receiving a ratio depending on their holdings.
New York City based News Corp’s publishing businesses includes The Wall Street Journal, Dow Jones & Co., Barron’s, the New York Post; U.K based News International which publishes The Sun, The Times and The Sunday Times. Publishing interests also include the HarperCollins book publishing company. News Corp. also owns MarketWatch and the Dow Jones Newswires.
The conglomerate’s entertainment companies include the Fox News Channel, Fox broadcasting network and the 20th Century Fox film studio which have been the company’s main profit centers. The split, which has yet to be voted on, has been previously considered but was opposed by CEO Rupert Murdoch.
While investors have been urging the company to divest its publishing arm, where business has been gradually decreasing over the years, Murdoch now seems more open to the split. In addition, the company has been the subject of a controversial scandal that forced it to close down the News of the World tabloid that had been published for 168 years.
The scandal involved the hacking of a voice mail of a 13-year old girl who was reported missing and later found murdered. In addition to the closure of the News of the World and several senior executive resignations, the company also canceled its bid for the remaining 61 percent of British Sky Broadcasting UK: (BSY: Charts, News) that it did not already own.
According to some analysts, both companies would have strong balance sheets after the split, nevertheless, how News Corp. decides to split the $10.7 billion in cash and cash equivalents it had as of March 31st, has yet to be decided. The two companies would be roughly valued at a little over $1 per share for the publishing arm and $23 for the entertainment company.
As revenues continue declining for the publishing arm, News Corp.’s cable network income rose 15 percent in the last quarter to $846 million while the movie and television studios brought in $272 million versus a previous $248 million last year.
With the stock currently trading at multi-year highs, if the split is approved, the more profitable entertainment side could be the better investment. Nevertheless, even if the deal is approved, it will still take months to finalize, giving investors time to consider the two companies.
Other News About NWSA
News Corp split could be part of bigger masterplan
UK article on Murdoch’s possible plans
Top Executives Weigh Breakup of News Corp.
NYT article on what other execs think of split.
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