Wall Street watchers are starting to weigh in on what might happen if News Corp. follows Viacom’s lead and becomes two companies – not a difficult chore since they’ve been thinking about just such a move for some time.
Wells Fargo took a look at the prospect as recently as 3/1/12 – at the time, it figured that the company’s global publishing assets were valued at somewhere around $5.4B. Wells Fargo’s Marci Ryvicker notes that they may have seriously underestimated the value of cornerstone publishing asset The Wall Street Journal.
Upon revisiting the topic, and thinking of WSJ as a standalone, Ryvicker believes that they may have underestimated the value of the publishing assets by $1B or more.
Wells Fargo thinks that the primary reason to consider the split is pure business. It’s about the creation of value, despite all the talk about insulating entertainment properties from the troubles the company is experiencing in the UK.
If it’s going to happen, Wells Fargo thinks it might be sooner rather than later, and will almost certainly wind up with Rupert Murdoch atop both corporate heaps, as is Sumner Redstone at Viacom.
In the end, Wells Fargo sees it as a positive catalyst for the company’s stock.
Barclay’s also sees positives in the split. It suggests that the publishing assets account for 24% of News Corp. revenue, give or take; about 11% of operating income; and about 7% of its enterprise value.
Splitting it away from the entertainment assets would likely entice investors to the higher growth profile of the former.
Barclay’s Anthony DiClemente notes that the company’s stock suffers from a “holding discount” tied to the publishing assets, a situation that would be significantly reduced by splitting them away.
DiClemente said there is also a Murdoch discount that affects News Corp. stocks – and of course, if he remains in control of both resulting corporations, that will not go away. However, he noted that it has been gradually receding in part due the company’s stock buyback program and in part because of the perception that President/COO Chase Carey is increasing his influence over the company.
RBR-TVBR observation: Why not store the apples and the oranges separately? This idea of splitting the company on its natural fault line makes perfect sense to us.
It also calls into question the value of broadcast/newspaper cross-ownership. The differences between the two businesses are vast enough to make running them in tandem a lot more difficult than it might seem.
It has been a hot topic in the US as a regulatory matter going back to Michael Powell’s 2003 attempt to loosen the restrictions on such pairings.
It’s kind of interesting that some watchdogs are fighting to prevent such pairings even while those who actually have such pairings are splitting them up – witness the just-completed sale of most of Media General’s newspaper holdings.