News Corp.’s board unanimously approved a plan to split the company into separate publicly traded publishing and entertainment companies. According to
a report in the
Wall Street Journal,
which is part of News Corp.’s publishing business, the process will take about a year and will require formal board approval.
News Corp. chairman Rupert Murdoch will be chairman of both organizations and CEO of the media and entertainment company.
Two anonymous insiders
told the
Financial Times
that Murdoch, who long opposed investors’ demand to split the company, changed his mind because the split would help both companies to make deals. But in analysis of the split, the
FT
‘s
John Gapper noted that
“the news division is no longer sturdy enough to finance its own investment needs.” Gapper wrote that hundreds of millions of dollars will be needed to cover legal liability stemming from the phone hacking scandal at News Corp.’s U.K. tabloids; at the same time, funds will be needed for digital investments at the news company.
In a Reuters blog, business writer
Felix Salmon noted
that Rupert Murdoch “at heart, is a news man, and although most of his wealth is attributable to sports and entertainment, it’s clear that his heart is very much in journalism. Moreso, it should probably be said, than most of the Bancrofts who sold him the
Journal
.”
Salmon wrote that the split will make it easier for Murdoch to take the news company private. “Rupert Murdoch won’t be any poorer after this deal is done — in fact, he’ll be richer, thanks to the eradication of the ‘Murdoch discount’ — and so his newspapers’ charmed lives as playthings of a billionaire who doesn’t care much about ROE is likely to continue either way,” Salmon wrote.
Both Salmon and Gapper pointed out that investors in the news company will demand profits. Salmon wrote:
“Up until now, Murdoch has never really needed to worry very much about his newspapers’ profitability, because the rest of his empire was throwing off such enormous profits. That’s going to change. Even if he does take the papers private, none of his heirs particularly wants to inherit them. There’s a big question mark over the papers’ future, now, which will only grow as Murdoch gets older.”
(Sources:
Wall Street Journal,
June 28, 2012;
Financial Times,
June 27, 2012 and June 28, 2012; Reuters, June 27, 2012.)
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