The news that $33 billion Southeastern Asset Management recently established a near 12% stake in News Corp (NWSA) sums up why Rupert Murdoch made the decision to spin off the publishing arm of his empire as the newly reconstituted News Corp, and unleash the more profitable (and growing) entertainment division as its own standalone firm: Twenty-First Century Fox (FOX).
In the realm of value investors, Southeastern Asset Management occupies a seat in the really-deep-value wing. It won’t bite -- especially bite in such a big way as it has done with News Corp -- unless it can find a solid, well run business that it calculates is selling at least 40% below its calculation of intrinsic value.
Using book value, a related if imperfect metric to gauge valuation, News Corp is indeed the deeper value.
If you’re O. Mason Hawkins and Staley Cates at Southeastern Asset Management, you believe there’s under appreciated value in the slower growth publishing assets. If you’re not a patient value type, you’ve been grousing for years that the publishing assets were a drag on the more dynamic entertainment division.
While Southeastern Asset Management teamed with Carl Icahn to agitate (unsuccessfully) for a higher take-out price for its Dell (DELL) shares as the company angled to go private, Southeastern says it harbors no activist leanings with the News Corp stake. Nor is it likely to be impatient; a 25% turnover rate at the company’s $8 billion Longleaf Partners mutual fund is about one-quarter the norm for actively managed stock funds.
Southeastern Asset Management’s stake in News Corp B shares (voting) makes it the second largest shareholder behind the 40% for Rupert Murdoch and his family. Big stakes are part of the Southeastern’s M.O. At the end of the second quarter Longleaf Partners was long just 18 stocks. The top 5 holdings accounted for about one-third of fund assets: Loews Corporation (NYSE:L), Chesapeake Energy (CHK), FedEx (FDX), DirecTV (DTV) and Bank of New York Mellon (BK). None of those positions were increased in the second quarter, and the DTV stake was reduced by more than 20% (to less than 6% of fund assets.)
Another old-school media vs. entertainment division spin off is scheduled for early 2014, when Time Warner (TWX) separates its movie and cable assets from its Time Inc. publishing arm.
Carla Fried, a senior contributing editor at ycharts.com, has covered investing for more than 25 years. Her work appears in The New York Times, Bloomberg.com and Money Magazine. She can be reached at firstname.lastname@example.org. Read the RIABiz profile of YCharts. You can also request a demonstration of YCharts Platinum.
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