Rupert Murdoch is considering splitting his News Corp. media company into two, one focusing on publishing and the other on entertainment, according to two people familiar with the matter.
Murdoch, who is chairman and chief executive officer of News Corp., is overseeing internal discussions on whether to separate the New York-based company’s businesses, said the people, who asked not to be identified because a decision isn’t final. The talks are at a late stage, one of the people said.
The discussion to split the company comes as U.K. regulator Ofcom considers whether News Corp. should be allowed to maintain its 39 percent stake in British Sky Broadcasting Group Plc. A phone-hacking scandal at the company’s U.K. newspapers thwarted News Corp.’s plans to take full control of Britain’s biggest pay-TV operator, which was led by Rupert’s son James for almost a decade. Some News Corp. shareholders have pushed for a breakup following the scandal.
“I don’t think most corporate shareholders want to have exposure to U.K. newspaper assets,” said Alex DeGroote, an analyst at Panmure Gordon. “But I think Rupert Murdoch wants the assets, so there’s a conflict between what shareholders want and what Rupert wants, so one way around that is de-merge them.”
Shares of News Corp. gained 2.4 percent to close at A$20.79 in Sydney trading. The Nasdaq-listed Class A shares fell 1.4 percent yesterday and have climbed 13 percent this year.
News Corp., owner of Fox Broadcasting and Fox News, derives at least 70 percent of its annual profit from television, and is working to expand in markets outside the U.S. with investments in pay-TV operators.
News Corp. Chief Operating Officer Chase Carey said in February that executives discussed a breakup following the U.K. scandal where tabloid journalists hacked into the phones of politicians and celebrities for exclusive stories. A News Corp. official declined to comment today.
A U.K. committee, after probing whether News Corp. misled Parliament in the telephone-hacking scandal, concluded last month that Murdoch, 81, is “not a fit person to exercise the stewardship of a major international company.” Now Ofcom may force News Corp. to sell or cut its stake in BSkyB. Its current 39 percent holding has a market value of 4.3 billion pounds ($6.7 billion).
Police probes into phone and computer hacking and bribery have led to more than 50 arrests, including former News of the World editors Rebekah Brooks and Andy Coulson, once the communications chief of U.K. Prime Minister David Cameron. News Corp. closed the Sunday tabloid in July of last year and later replaced it with a Sunday edition of the weekly Sun tabloid. In the U.K., News Corp. also owns the London-based Times and Sunday Times newspapers.
Publishing, which also includes the New York Post and Australian newspaper, contributed about 18 percent of News Corp.’s operating income in the 2011 financial year, according to data compiled by Bloomberg. Cable network programming generated 57 percent of earnings alone.
For the nine months ended March 31, News Corp.’s publishing unit generated operating income of $458 million, or less than 8 percent of its sales, according to the company’s earnings report in May. The cable networks, film and television units accounted for a combined $4 billion in profit, more than 25 percent of their $15.9 billion in revenue.
“Those that want the higher growth of the broadcast business and have it able to chase new markets will pay a premium for that,” said Peter Esho, the Sydney-based chief market analyst at City Index Ltd. “This is also a good way to quarantine the rest of the business from the recent issues in the U.K. when publishing is a small part of the business.”
The Murdoch family would retain control of both companies, News Corp.’s Wall Street Journal reported earlier today. The Los Angeles-based Twentieth Century Fox film and television studios, the Fox broadcast network and Fox News would form the bulk of the entertainment company, the Journal said, citing people familiar with the situation.
“There certainly is an awareness” that News Corp. would trade at higher multiples if it didn’t own newspapers, Carey said on a February conference call.
Murdoch has been increasing his focus on faster-growing broadcast assets as falling circulation and a shift in advertising to online outlets crimps earnings from newspapers.
News Corp. last week offered $2 billion for Consolidated Media Holdings Ltd. to double its stake in Australia’s biggest pay-television network while cutting jobs at the nation’s largest newspaper business.
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