News Corp. Splits Today. Now the Publishing Unit Has to Prove Doubters Wrong
Rupert Murdoch bowed to investor pressure to split his six-decade-old publishing business from the rest of News Corp.'s media empire. Now it's time for the newspaper unit to prove it can make it on its own.
The publishing unit -- owner of the Wall Street Journal, the New York Post and London's Sunday Times -- officially becomes independent today, losing the backing of News Corp.'s entertainment business as it pursues growth in a declining industry. The newspaper company, which will keep the News Corp. name, is valued at about $8.9 billion -- a seventh the level of entertainment business, which will be called 21st Century Fox.
Robert Thomson, who will be CEO of the publishing group, promised investors last month that the company would be "relentless in our cost cutting and in our pursuit of profits." He told The Financial Times in an interview published yesterday that the company was working on an effort for the Post to compete nationally with fast-growing sites like BuzzFeed.
Some of the newcomers are "basically ersatz tabloid journalism," Mr. Thomson told The Financial Times. "If we can't do it better than they can, then we're not as good as we think we are."
Revenue at News Corp.'s historical publishing division will drop 4% to about $7.72 billion in the year starting July 1, largely due to shrinking newspaper ad sales, according to an estimate by Richard Greenfield, an analyst at BTIG. That compares with an anticipated 9.9% gain, to $30.2 billion, for businesses that will mostly belong to 21st Century Fox. The disparity illustrates why investors pushed Murdoch to unshackle the two businesses, a move he agreed to in 2012 amid fallout from the phone-hacking scandal at its News of the World, now shuttered.
"When the company announced they were splitting in two, people labeled it 'good News Corp.' and 'bad News Corp.,'" Mr. Greenfield said in an interview. "Rupert has a belief this will be a growth business, and he's got a lot to prove."
Starting Monday, the two companies will trade under the tickers NWSA and FOXA. The voting Class B shares go by NWS and FOX.
While the new News Corp. will be a fraction the size of the old combined company, it still will be the largest newspaper company in the U.S. Gannett Co., publisher of USA Today and more than 80 other daily papers, has a market value of $5.64 billion while The New York Times Co. is worth $1.62 billion.
Starting off with $2.6 billion in cash will allow News Corp. to aggressively pursue deals. Mr. Murdoch has expressed interest in buying the Los Angeles Times, owned by Tribune Co., people familiar with his thinking told Bloomberg News in March.
The split allows for a cleaner, more transparent strategy when investing in the new companies, according to Matthew Harrigan, an analyst with Wunderlich Securities.
"I'm a big believer in the pure play," Mr. Harrigan said in an interview. "I think the print side will start off a little sloppy in the trades, but over time, if you're patient this could work out."
In addition to The Journal, the Times of London and the Post, the new publishing group includes Australian businesses that will make up more than a third of annual revenue. They include Australia's biggest newspaper publisher; the cable network Fox Sports Australia; half ownership in the country's largest pay-TV operator, Foxtel; and REA Group, an online real-estate listings service. HarperCollins book publishers, the Times and Sun newspapers in the U.K. and Amplify, a digital-education business led by former New York City schools chancellor Joel Klein, round out the portfolio.
The Australian assets have the potential to be growth drivers for the new company, according to Todd Juenger, an analyst with Sanford C. Bernstein & Co. He estimates sales at the real-estate unit will rise 16 percent to $399 million in the fiscal year that starts July 1, while Fox Sports Australia will see a 7 percent sales gain to $556 million in the same period.
Revenue at the newspaper unit, which includes database and newswire operations at Dow Jones & Co., publisher of The Journal, are expected to decline 2.4% to $6.56 billion, while accounting for more than 72% of total News Corp. sales, Mr. Juenger estimates.
~ Bloomberg News ~