Both Wells Fargo and Barclay’s believe that in the case of News Corporation, two stocks are better than one, even if the same honcho is at the heads of each. Both companies applauded the move, and said that of course it came as no surprise.
Wells Fargo analyst Marci Ryvicker noted, “This morning’s announcement is a formality and was largely expected. We do think there could be some disappointment that Chase Carey was not named as CEO of the media and entertainment company, but overall we continue to view this transaction as value-enhancing, allowing for strategic flexibility, visibility and enhanced growth in both divisions.”
Wells Fargo also put together a handy dandy list of assets that would be going into each company:
* The publishing unit would consist of U.S assets such as Dow Jones, The Wall Street Journal, Dow Jones Newswires, HarperCollins, The New York Post, and The Daily; Australian assets such as The Herald Sun, The Daily Telegraph and The Courier Mail; U.K. assets such as The Times, The Sun, The Sunday Times; News Corporation’s integrated marketing services group; and NWSA’s digital education group, including Wireless Generation.
* The entertainment and media company would consist of Fox Broadcasting, Twentieth Century Fox Film, Twentieth Century Fox Television, Fox Sports, Fox International Channels, Fox News Channel, Fox Business Network, FX, Star, the National Geographic Channels, Shine Group, Fox Television Stations, BSkyB, Sky Italia and Sky Deutschland.
At Barclay’s, they repeated early statements to the effect that the split would reduce the “conglomerate discount” that affects the company’s stockprice. And whether or not the hacking scandal is a motivator for the split, Barclay’s said the split will have the effect of creating “ring-fence” around liabilities associated with it.
According to Barclay’s Anthony DiClemente, the move should improve stock pricing, and it has increased its target price from $23 to $25. The stock was trading about a quarter of a dollar above $22 when markets closed Thursday 6/28/12.
Barclay’s believes the publishing unit can be valued at 4.5X 2012 EV/EBITDA. The entertainment unit will be much higher, from 8X-9X 2012 EV/EBITDA. The higher multiple puts it in Disney 9.4X territory, according to DiClemente, with Disney benefitting from its theme parks and News Corporation suffering from the anchor that is known as Sky Italia.