It seems that
) will finally have to bow before disgruntled shareholders, who
from a long time have been pressing hard to sever the publishing
business. Yesterday, the company confirmed that it is contemplating
on splitting the company into two separate publicly traded
companies, thereby giving shareholders a reason to cheer.
The stock price jumped 8.3% on the news to close at $21.76, the
highest level achieved since 2007.
The diversified media conglomerate is mulling on spinning the
newspapers, HarperCollins book publisher and education operations,
and creating a much more profitable entity including Fox broadcast
TV network, Fox News Channel and the 20th Century Fox movie studio,
as reported by
The Wall Street Journal
, the company's flagship newspaper. Presumably, Murdoch's family
will spearhead both the companies.
We believe that the breakup would help News Corporation to lift
its image, which was tainted due to the phone hacking scandal that
resulted in the closure of the publication of 'The News of the
World' and abstinence from acquiring the remaining 61% stake in the
British Sky Broadcasting Group.
Further, there has been immense pressure from shareholders to
divest the publishing arm which has been grappling with lower
operating profit compared with the entertainment unit. The secular
headwinds and the migration of advertisers to the Internet due to
increasing online readership have been hurting the publishing
This was quite evident from a 19% decline in operating income to
$130 million during the last reported quarter on account of a fall
in advertising revenue at the Australian and U.K. newspapers,
partly offset by gains from Dow Jones, HarperCollins and the
integrated marketing services business.
On the contrary, operating income jumped 15% to $846 million at
Cable Network Programming. Advertising revenue climbed 10% on the
back of growth registered across FOX News and the National
Geographic Channels. Filmed Entertainment operating income rose 10%
to $272 million.
If News Corporation goes ahead and decides to split the
business, it is obvious that the entertainment company with better
prospects will enjoy greater chances of luring investors than the
publishing entity, which in order to expand, would seek
acquisitions and spread wings in the education industry.
In the past there have been instances when companies split into
two separate entities in order to unlock hidden value.
) was born out of
) when the latter split into two publicly traded companies Viacom
and CBS Corporation on December 31, 2005. Based in New York,
Time Warner Cable Inc.
) formerly operated as a subsidiary of
Time Warner Inc.
). From March 12, 2009, Time Warner Cable started operating
independently leaving Time Warner.
Currently, we have a long-term 'Neutral' recommendation on News
Corporation. Moreover, the company holds a Zacks #3 Rank that
translates into short-term 'Hold' rating.
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