As the phone hacking scandal at its former British tabloid News of the World continues to rage, News Corp. is considering separating its newspaper and publishing units from its more profitable television and film properties, according to a report in The Wall Street Journal.
The move would be a welcome one for most analysts, who have been calling for a split for years. The publishing division includes U.S. properties like the New York Post and the Journal as well as British papers the London Times, the Sun, Harper Collins book publishers and several Australian newspapers. News Corp. shut down tabloid News of the World, the focus of the hacking scandal, in 2011.
News Corp.'s television properties include cable network stalwarts like Fox News Channel, FX and Fox Sports, and broadcasting powerhouse Fox Broadcasting. Its film studio 20th Century Fox is the home of such recent box office hits like Ice Age and Avatar.
News Corp. confirmed the Journal report Monday, issuing a brief statement that it is "considering a restructuring to separate its businesses into two distinct publicly traded companies."
While the Journal article said a final decision hasn't been made, the paper said that chairman and CEO Rupert Murdoch, who has long opposed a split, has recently warmed to the concept. On its fiscal third quarter conference call with analysts in May, chief operating officer Chase Carey said a split has been discussed by News Corp.'s board of directors, but the company had decided not to pursue the matter at the time.
But times have changed. In May British regulators hinted that News Corp. may not be an effective steward of U.K satellite television powerhouse British Sky Broadcasting (of which it owns about 39%). In the meantime, the phone-hacking scandal continues unabated and its television and film units continue to grow steadily.
While a final structure hasn't been finalized, the Journal article said it could be similar to Viacom's spin-off of its CBS television unit in 2006.
Analysts have begun to weigh in on the possibility of a spin off, and as expected, most are in favor of a deal. In a research note Tuesday, Miller Tabak media analyst David Joyce estimated that the publishing assets were worth an average of $1.55 per News Corp. share. Depending on the ratio of the split -- he based his estimate on a 1:1 ratio, but stated that 1:10 was more likely -- the publishing assets (including newspaper, book publishing and education) could be valued at as much as $15.50 each.
Joyce estimated that a split would also unlock additional value at the cable, broadcast and film assets, estimating that a split would boost the share price to $29.24 each, a 31% increase from its Monday close of $20.28 per share
News Corp shares were up about 7% ($1.39 each) to $21.67 in early trading Tuesday.