Looking to the past to assess the News Corp. split


News CorporationWhen evaluating the proposal to cleave News Corp. in twain, there is no lack of prior corporate splits to assess in the recent past. SNL Kagan took a brief look at two in particular.

Kagan noted the general support for the split among the analyst community – and also noted that the News Corp. plan did not exactly catch anybody by surprise. Rather something along these lines has been expected and speculated about for some time.

The Kagan analysis also made not of the fact that the move is not a knee-jerk reaction to the hacking scandal in the UK. The proposal to split is being considered on its own merits, not in order to insulate the entertainment properties from the legal problems of the publishing properties.

One of the splits Kagan looked at is that of Belo, which separated its television and newspaper holdings into two companies. The biggest takeaway for New Corp. from this split seems to be this: Don’t do it on the eve of a major global recession.

TheQ4 2007 combined Belo had a market cap of $1.78B. In Q1 2008, after the split, it had already fallen to $1.08B broadcast and $234.1M publishing for a vastly disappointing total of $1.31B. And it has continued on a downward spiral, reaching a Q1 2012 nadir of $746M broadcast and $106.8M publishing for a $852.8M total.

Belo was likely to suffer setbacks whether it split or not simply due to the timing of the move.
It was a different story for the separation of E.W. Scripps and Scripps Networks Interactive, also in 2008. Kagan said Scripps was valued at $6.85B before the split, and after undergoing a period of declines, it bounced back. By Q1 2012, SNI was valued at $7.41B and E.W. Scripps at $550.6M for a total of $7.96B.

With the Scripps move working and the Belo failure likely being caused by uncontrollable general economic conditions to a great degree, there is cause for optimism about the New Corp. move.

At least one observer believes it would be a good idea for News Corp. to invest in properties that will be ongoing concerns with cash received from the sale of its marketing services business, a move that could bring in $1.15B – money that could be plunged into digital and possible M&A action.

RBR-TVBR observation: Most of the reaction we’ve seen has been positive. On the publishing side, News Corp.’s Wall Street Journal has perhaps been the most outstanding exception to the carnage that has been inflicted on the newspaper business by the one-two punch of internet competition and the recession.

The company’s publishing division will be able to devote its energy to bringing all of its holdings competitive the 21st Century; meanwhile, they will not be acting as a drag on the company’s other lucrative broadcast and cable properties.

It all makes perfect sense to us.