The investment community is riveted today by stories that News Corporation (NWS) is considering splitting into two companies one holding its television and movie assets and the other its print publishing business, the latter which has been engulfed in scandal in the United Kingdom. The investment community has a short memory as does the journalists who follow it and nobody is asking have we not seen this before. By before, I do not mean Viacom – which I will get to later. By before I mean the history of News Corp itself.
News Corp was once an Australian company and today is it is a US Corporation incorporated in Delaware. Because some mutual funds cannot buy foreign stocks or are restricted in such, News Corp over a decade ago spun out a minority interest in Fox which was a US company and its principal asset. This was done also to “highlight” the value of Fox. Several years later News Corp did a major corporate restructuring which it converted the parent from Australian to American. There were pragmatic reasons to do this, most of its businesses are in the United States and there are still laws on the book regarding foreign control of television stations which prompted CEO Rupert Murdock himself to change his citizenship from Australian to American years before. Soon after, News Corp bought back the Fox minority stub.
Despite all the machinations, never mind all the mind numbing stock and asset transfers regarding Direct TV and Liberty Corp – News Corp stock is lower today than it was at the beginning of 2000. Direct TV in contrast since no longer being part of News Corp has a stock trading near a record high. This brings us to Viacom which bought CBS and then later split into two separate companies, essentially making CBS independent again. At the time, it was widely assumed the more valuable piece was Viacom with its fast growing cable networks like MTV and Nickelodeon. CBS was badly trailing NBC in ratings and was considered a network whose viewership was “too old” for advertisers. Since the split in 2006, CBS stock has actually outperformed Viacom, with CBS doing slightly better than the S&P, but Viacom only doing half as well as CBS. This has nothing to do with the split – it is related to fundamentals – the cable networks growth has cooled and CBS found new growth from milking re-transmission fees – these things would have happened split or not.
The big push for the split now is apparently to resolve concerns in Great Britain about News Corp’s dominance in British media markets across assets and pave the way to take full control of BskyB which it now own 39% off. But this assume regulators and politicians won’t notice that the Murdoch family will still control 40% of both newly split companies as it controls 40% of News Corp today. It might also be to remove the taint of the phone hacking scandal from the parent and its assets unrelated to it, but the phone hacking issue will resolved eventually and doing a major corporate restructuring to improve the optics on a temporary blemish is myopic, but Wall Street is myopic. And yes, investors like pure plays – but give them six months and they will find something else they don’t like and what do you do then? This fascination with pure plays is well “fascinating” implying that all these highly paid Wall Street people are not capable of valuing business components and adding them together – they need something simple.
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