News Corp. Closer to Split

Zacks

News Corporation (NWSA) inched a step closer toward splitting its operations into 2 separate publicly traded publishing and entertainment entities as the company’s stockholders in special meeting consented to the company’s decision.

The separation is expected to augur well for News Corporation, which has been in troubled waters since the revelation of the phone hacking scandal. In addition, it will definitely help the company improve its financials as the Publishing division continues to remain a drag on its results.

Earlier, the company announced that its shareholders will receive one share in the new Publishing company for every four shares they hold in the existing one. Moreover, to prevent unfavorable takeovers, News Corporation adopted a poison pill provision, which will be applicable for one year post split.

Following the division, the Entertainment company (to be named 21st Century Fox) will encompass cable and television assets, filmed entertainment, and direct satellite broadcasting businesses including Fox broadcasting, cable network, Fox News Channel, the 20th Century Fox movie studio, BSkyB, Sky Italia, Sky Deutschland, and pay-TV operations in Europe and India.

The company is fortifying its Entertainment division by focusing on enhancing its portfolio of regional sports channels to solidify its Fox Sports Media Group’s position in the lucrative sports entertainment business, where it competes with Walt Disney Company’s (DIS) sports coverage network, ESPN.

Additionally, the Publishing entity (to be known as News Corporation) will comprise publishing businesses, education unit and the integrated marketing services business, with brands like The Wall Street Journal, HarperCollins and Amplify.

The Publishing company will start operations with $2.6 billion in cash and no debt once its planned spin-off is complete. We believe that with adequate cash, the new News Corporation will be better positioned than its peers, The New York Times Company (NYT) and Gannett Co., Inc. (GCI), to make strategic acquisitions and expand its business.

Currently, shares of News Corp carry a Zacks Rank #3 (Hold).

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