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Thursday, Jun 28, 2012 9:15 PM UTC

News Corp. approves Murdoch plan to split company

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Topics: From the Wires,

LOS ANGELES (AP) — Rupert Murdoch’s News Corp. said Thursday that its board has approved a plan to split into two companies, one containing struggling newspaper and book publishing businesses and the other comprising faster-growing entertainment operations.

Murdoch will serve as chairman of both new companies and CEO of the entertainment company. The Murdoch family, which controls nearly 40 percent of the voting shares in News Corp., is expected to maintain control of both companies.

News Corp.’s board unanimously approved the split in principle. It will take a more formal look at the details in coming months. The separation is also subject to regulatory approval and is expected to take about a year.

The split of News Corp. is a symbolic turning point for Murdoch, the company’s 81-year-old CEO. Through the years, Murdoch maintained a fondness for newspapers even as he purchased entertainment companies and built a media conglomerate with a market value of $53 billion. In hearings last summer before U.K. lawmakers, he conceded that he regularly called newspaper editors under his employ with the greeting: “What’s doing?”

Investors have already applauded the change. Since news of the split broke early Tuesday, News Corp. shares are up 9 percent. They slipped 32 cents, or 1.4 percent, to $21.99 on Thursday.

News Corp. said existing shareholders will get one share of stock in the publishing company for every News Corp. share they own. The exact ratio could change. Each company would maintain two classes of stock, voting shares and non-voting shares.

Murdoch is hoping the television and movie company will be more highly valued by shareholders who hadn’t been unwilling to accept the dour growth prospects of the newspaper and book business.

But he now faces the challenge of making the publishing division attractive enough for new investors. Taken as a whole, News Corp.’s entertainment businesses are much more promising. In the nine months through March, the combined cable channel, TV station, satellite TV and movie businesses saw revenue rise 9 percent to $18.66 billion. Operating profit rose 23 percent to $4.17 billion.

By contrast, the publishing arm’s revenues and profits have been shrinking over the same period. Revenues declined 4 percent to $6.22 billion while operating profits slipped 22 percent to $458 million.

Companies that once spent money for newspaper advertisements have been flocking to the Internet in search of cheaper ad space. Print newspaper subscriptions continue to fall. Meanwhile, newspapers’ digital subscriptions and ads have been slow to make up for the decline.

“News has been reduced to being a minor part of what we now think of as media,” said newspaper analyst Ken Doctor said, writer of the Newsonomics blog. “News needs to be thought of differently and, in a sense, subsidized.”

Investors have long pestered News Corp. to get rid of the struggling newspaper business. Murdoch acknowledged Thursday that the idea has been discussed internally for more than three years.

Still, he said he rejects “naysayers” who doubt the long-term future of the printed word.

“The answer is one word: it’s digital,” Murdoch said to analysts on a conference call. “People are buying pure papers printed on crushed wood, but they are equally getting their news in many other forms.”

Even so, Murdoch plans to put money behind those words. To address the concerns of future shareholders, he promised that the publishing division will be split off with “a robust net cash position” to be used for potential acquisitions.

News Corp. had $10.7 billion in cash and cash equivalents on hand at the end of March.

Analysts said the split will allow Murdoch to pursue the newspaper business with the same fervor he had when he began building his empire 60 years ago. It also contains the possible damage from mistakes, such as the one he made when he overpaid for Dow Jones & Co. in 2007.

“Once the companies are separated, he’ll be able to make acquisitions without upsetting the valuation of the entertainment business,” said Alan Gould, an analyst with Evercore Partners. “I don’t worry about the acquisitions he’s doing 2 to 3 years down the road in publishing.”

The entertainment company will have its challenges too. While growing faster, News Corp.’s entertainment business is by no means perfect. Movie studios face declining DVD sales. One year’s hits can be followed by another year’s bombs. TV stations are recovering in the aftermath of the Great Recession, thanks to political ad spending and the newfound health of the U.S. auto industry.

The stalwarts have been pay TV channels like Fox News Channel and FX, which are growing quickly in places like India and Russia, where incomes are rising.

Murdoch denied the timing of the split was due to a U.K. probe into alleged phone hacking and bribery by News Corp.’s British newspapers.

Some investors were unhappy with the announcement that all of the company’s Australian assets, including the planned acquisition of Consolidated Media Holdings for $2 billion, would be housed on the publishing side. Consolidated holds a 50 percent stake in pay TV operator Foxtel and all of Fox Sports in Australia.

Another complication: Murdoch said the split could cause a “moderate slowing down” of a stock buyback program. The company is nearly half way through a two-year $10 billion plan set to wrap up next June.

___

Business Writer Bree Fowler in New York contributed to this report.

More Ryan Nakashima.

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