It's now official that
), a 60-year old company with a market value of approximately $53
billion, will finally split into two separate publicly traded
publishing and entertainment entities. The steering will remain in
the hands of 81-year old veteran Rupert Murdoch, who views this as
the right move, at the right time and in the right direction.
The diversified media conglomerate is spinning the newspapers,
HarperCollins book publishing, its digital education operations and
the integrated marketing services business. It is also and creating
a much more profitable entity including Fox broadcasting, cable
network, Fox News Channel, the 20th Century Fox movie studio,
BSkyB, Sky Italia, Sky Deutschland, and pay-TV operations in Europe
The decision to divide into two has finally brought a reason to
cheer for disgruntled shareholders, who from a long time have been
pressing hard to sever the publishing business.
The process of separation will likely take a year, and result in
News Corporation's stakeholders receiving one share in each new
company formed for each share they currently hold. Murdoch's family
with approximately 40% voting right will spearhead both the
Chase Carey will serve as chief operating officer of the
entertainment company and maintain his present role in News
Corporation. The company is yet to decide who will assume the role
of CEO in the publishing company.
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.
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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