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Good News

26 June 2012 By Jeffrey Goldfarb

Rupert Murdoch has all but erased the discount he inflicted on his media conglomerate. When scandal struck News Corp last year, a Breakingviews calculator found the company trading around 30 percent below the sum of its parts. The possibility of splitting the company in two, confirmed on Tuesday, may complete an improbable run to close the gap.

The phone-hacking affair at the company’s British tabloids exacerbated the “Murdoch discount.” This special breed of conglomerate markdown took hold because of the octogenarian mogul’s affinity for newspapers despite their low margins and lack of growth and his undisciplined approach to acquisitions.

But the misdeeds have sharpened News Corp’s focus. In the past year, the company has increased its dividend and announced $10 billion of stock buybacks. After Murdoch’s son, James, was sidelined, Chase Carey, Murdoch’s right-hand man, took a more prominent role and considered shareholders who don’t bear the family name.

News Corp still trades at a discount to peers like Time Warner and Walt Disney. But the market’s valuation now more closely adheres to the sum of its disparate parts, according to an updated Breakingviews analysis using divisional profit forecasts by Barclays and comparable valuation data from Thomson Reuters.

Put the company’s cable operations, including Fox News, on a multiple of nine and they’re worth nearly $30 billion. Earnings from its studio, producer of films like “Prometheus,” and its U.S. Fox broadcast network, home to hit shows like “Glee,” are more unpredictable, but should be valued at over $13 billion together. Sky Italia and various private holdings add about another $4.5 billion. Stakes in publicly traded companies including BSkyB contribute almost $9.5 billion more.

The publishing unit, which includes HarperCollins and the Wall Street Journal, is worth a mere $2.5 billion. But the idea it might be spun off added 8 percent to News Corp’s market value on Tuesday, bringing it to nearly $53 billion. Ignoring the unprofitable digital unit and stripping out net debt of almost $5 billion, the company’s pieces should add up to more than $54 billion, or just about 4 percent more than where they trade. In a way, the scandal may have been the best thing to happen to News Corp.


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