News Corp. Spinoff Starts With $2.6 Billion in Cash
News Corp. (NWSA)’s publishing spinoff will be armed with $2.6 billion in cash and no debt, demonstrating Chairman Rupert Murdoch’s passion for print even as the new company confronts an industry in decline.
The cash pile could come in handy for acquisitions or just to shore up the publishing business, which includes the Wall Street Journal in the U.S. and the Sun newspaper in the U.K. The unit, which will become a separate publicly held business in June, will also have access to a revolving credit line, New York-based News Corp. said today in a filing.
Rupert Murdoch, News Corp.’s founder and chief executive officer, is breaking off the division from the company’s entertainment operations, which will be called Fox Group Inc. News Corp. agreed to the spinoff last year, bowing to pressure from shareholders who wanted the company to focus on its more valuable television and film businesses.
News Corp. rose 2.1 percent to $30.57 at the close in New York. The stock has increased 20 percent this year, compared with an 8.8 percent gain for the Standard & Poor’s 500 Index.
The publishing spinoff will have $18.6 billion in total assets. Its debt-free balance sheet puts it far ahead of publishers such as New York Times Co. (NYT), with $163 million in net debt; Gannett Co., with $1.26 billion; and McClatchy Co., with $1.78 billion, according to data compiled by Bloomberg.
The parent company will give $1.82 billion in cash to the new publishing business, pushing its total to $2.6 billion, according to today’s filing.
Murdoch also continues to bet on growth in the television business. News Corp. this year raised its stake in pay-TV provider Sky Deutschland AG (SKYD) to 54.5 percent from 49.9 percent. Today, the German company proposed naming James Murdoch -- News Corp.’s deputy chief operating officer and Rupert’s son -- to its supervisory board during its April 18 annual shareholder meeting.
The new publishing company reported a pro forma net loss of $1.89 billion in the fiscal year that ended on June 30, with sales of $9.14 billion. The loss included $2.6 billion in writedowns, mostly reductions in the value of newspapers, highlighting the challenges facing Robert Thomson, who will become chief executive officer of the new company after serving as managing editor of the Wall Street Journal.
Still, Murdoch’s fondness for newspapers has him considering more acquisitions, including the Los Angeles Times, according to two people familiar with the company’s plans. Tribune Co., which owns the Times as well as seven other dailies, would prefer selling its newspaper group in a single transaction, these people said in March.
In addition to his newspapers, Murdoch’s new publishing company will also include book publisher HarperCollins; education business Amplify, led by former New York City Schools Chancellor Joel Klein; and the Australian television assets.
Assuming the New York-based company doesn’t face significant further costs from a U.K. hacking scandal, the publishing spinoff could maintain little-changed to slightly rising earnings in the coming year, leaving out interest, taxes, depreciation and amortization, said Brett Harriss, a media analyst at Gabelli & Co. in Rye, New York.
“They’ll still be cash-flow positive,” Harriss said in a December interview. “And it’s not a surprise how much they lost from hacking.”
The company closed its News of the World newspaper in July 2011 in response to public anger over revelations that journalists accessed messages on the mobile phone of murdered schoolgirl Milly Dowler.
The company has so far spent more than $347 million in legal fees and restructuring, mostly stemming from the closing of News of the World.
Thomson, 51, began working as CEO in January, and stands to make as much as $4 million in the new job, with $2 million in salary and the remainder coming from incentives.
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