5th UPDATE: News Corp Confirms Plan to Split Company
06/28/2012| 02:00pm US/Eastern
--News Corp. to split into two companies
--Rupert Murdoch to be chairman of both, CEO of entertainment company
--News Corp. plans to assemble new management teams in months ahead
(Adds further details and updates share price in the seventh, 10th, and 14th paragraphs.)
By William Launder and John Jannarone
News Corp. (NWS, NWSA, NWS.AU) said it will separate its publishing business from its film and television divisions in a move that will split some of the world's biggest media brands into two distinct public companies.
One company will house entertainment businesses including 20th Century Fox, Fox broadcast network and Fox News Channel, while the other will contain publishing assets, which include The Wall Street Journal and the Times of London along with HarperCollins book publishing and News Corp.'s education business.
News Corp. owns Dow Jones & Co., the publisher of this newswire and The Wall Street Journal.
Chairman and Chief Executive Rupert Murdoch said during a conference call with analysts the split was the culmination of a three-year-review process that would create two "best in class" companies that can be better and more-easily managed separately.
Mr. Murdoch, who began building his media empire more than a half-century ago with one newspaper, further hinted the move to split the company was an emotional one. "It's a very big move and big decision for me."
Mr. Murdoch will become chairman and CEO of the entertainment-and-media business, while Chase Carey, News Corp.'s chief operating officer, will retain his title at the entertainment-and-media company.
News Corp. didn't specify who will be in charge of the publishing company, but Mr. Murdoch said he would likely pick an internal candidate. He said his oldest son, Lachlan, is unlikely to take the role, as some observers have speculated in recent days.
Mr. Murdoch told CNBC the reputation of his son James hadn't been ruined by the phone-hacking scandal at News Corp.'s U.K. tabloid division. The CEO stopped short of suggesting one of his children would become the heir to his businesses, saying they would "have to earn it" and "want it."
News Corp. plans to put together management teams for both companies over the next several months. Mr. Murdoch promised to be a "pretty active" chairman at the publishing business.
Although News Corp. didn't offer specific details on how it would split its roughly $15.2 billion in long-term debt and $10.7 billion in cash and cash equivalents, Mr. Murdoch promised the publishing division would be endowed with a "robust" cash position, while the entertainment business would be saddled with more debt.
He also conceded shares of the publishing company would "clearly" trade at a lower price-to-earnings multiple following the split.
The split culminates years of pressure on Mr. Murdoch from investors, who have viewed News Corp.'s slower-growing publishing unit as a drag on earnings at the lucrative cable-television and film division. The decision also comes almost a year after broader revelations of a phone-hacking scandal at News Corp.'s U.K. tabloid division.
Mr. Murdoch dismissed suggestions the decision to split was a response to the phone-hacking scandal. The decision "is not a reaction to anything in Britain," he said.
Shares jumped 11% over Tuesday and Wednesday following reports of the split. In Thursday trading, News Corp.'s Class A shares slid 1.2% to $22.05.
News Corp.'s board approved the split, in principle, at a meeting in New York Wednesday evening that lasted roughly an hour and a half, a person familiar with the matter said. Mr. Murdoch spoke at the meeting and financial advisers made presentations to the board.
Under the plan announced Thursday, News Corp. shareholders will receive one share in the new company for each same class share currently held. But News Corp. plans to reconsider the exact ratio as the split-up process develops.
Each of the two companies will maintain two classes of stock. Mr. Murdoch's family, which owns a roughly 40% voting stake, is expected to maintain effective control of the two companies.
The separation is expected to be completed in 12 months. Once the company gets final approval from the board, it will hold a special shareholder meeting to vote on the plan. That meeting is expected to take place in the first half of next year. The company also will need regulatory approval to ensure the tax-free nature of the transaction. Mr. Murdoch said he hoped News Corp. would have most of the fallout from the phone-hacking scandal behind it by that time.
He also said News Corp. wouldn't try to increase its stake in British Sky Broadcasting Group PLC (BSYBY, BSY.LN), in which it owns a stake of around 39%. News Corp. was forced to drop its efforts to buy the rest of the British pay-TV operator last year as the phone-hacking scandal intensified.
Messrs. Murdoch and Carey said the company hadn't been properly valued by investors--a concern the split will, in part, address. The companies still will have opportunities to work together "at arm's length" after the split, Mr. Carey said.
Write to William Launder at email@example.com.