News Corp. Will Write Down Print Division as Cash Flow Slows

News Corp. (NWSA), the media company controlled by billionaire Rupert Murdoch, said it will write down the value of its soon-to-be-independent publishing business by $1.2 billion to $1.4 billion this quarter, blaming slowing cash flow from its Australian and U.S. newspapers.

News Corp. revised its outlook and strategy for the Australian publishing business -- and to a lesser degree, the U.S. operations -- and now expects them to generate less cash than anticipated, the company said yesterday in a filing. As a result, “the fair value of these reporting units declined below their respective carrying values.”

The writedown comes as New York-based News Corp. prepares to break off publishing from its entertainment operations next month. Murdoch agreed to the split last year under pressure from shareholders, who wanted the faster-growing entertainment division to trade separately.

News Corp. has written down its publishing assets before, as an industrywide advertising slump takes a toll on the once-lucrative newspaper business. Its chain of Australian newspapers, the genesis of Murdoch’s media empire, has been hit especially hard. News Corp. restructured the business last year and cut jobs in a bid to improve profitability.

The company’s total publishing business reported a net loss of $1.89 billion in the last fiscal year, which ended June 30. The loss included $2.6 billion in writedowns, mostly reductions in the value of newspapers. News Corp. also wrote down the value of its Dow Jones & Co. division by $2.8 billion in 2009. Murdoch bought Dow Jones from the Bancroft family for $5.2 billion in December 2007, acquiring the Wall Street Journal and Dow Jones Newswires as part of the purchase.

Board Changes

News Corp. also announced a new slate of board members for each company yesterday, as well as a $500 million stock repurchasing fund for the publishing business.

The board authorized News Corp.’s split into two companies, with investors getting one share in the newspaper unit for every four News Corp. shares they own, according to a separate statement yesterday. After the split on June 28, the publishing company will retain the News Corp. name, while the TV and film assets become 21st Century Fox.

The buyback fund provides an option for the debt-free newspaper company as it determines how to use the $2.6 billion cash balance it will have following the split.

Seeking Improvements

“Both Fox and the new News Corp. have some attractive qualities,” Michael Morris, a media analyst with Davenport & Co., said in an interview. “With the new News Corp., investors will focus on whether there are opportunities to improve the economics of the publishing business.”

The publishing group will benefit from the growth of Australian businesses in television and real-estate listings, Morris said. Earnings dropped 35 percent last quarter from a year earlier in the unit, which also prints the Times and Sun newspapers in the U.K.

There was no information on what kind of dividends the publishing company will pay out once it becomes public.

News Corp. climbed less than 1 percent to $33.09 at the close in New York. The shares have climbed 30 percent this year.

Murdoch will be chairman and chief executive officer of 21st Century Fox and executive chairman of the new News Corp. His children, James and Lachlan, will be on both boards.

Board Makeup

New members of 21st Century Fox’s board include Delphine Arnault, deputy general manager at Christian Dior Couture; Jacques Nasser, former CEO of Ford Motor Co. and now an adviser at One Equity Partners LLP; and Robert Silberman, executive chairman of Strayer Education Inc. (STRA)

On the publishing company’s board, the new faces are John Elkann, chairman of automaker Fiat SpA (F); Ana Paula Pessoa, a partner at public-relations firm Brunswick Group; Masroor Siddiqui, managing partner of investment firm Naya Management LLP; and Robert Thomson, CEO of the new News Corp.

News Corp.’s board also added a provision meant to allow shareholders to ward off a hostile takeover during the time around the split. Each share of the publishing company will include a right to purchase $180 worth of stock for $90, triggered when any investor acquires 15 percent or more of the voting shares from yesterday forward. For the entertainment division, the price is $300 worth of stock for $150.

The rights will expire a year from yesterday for 21st Century Fox and a year from the separation for the new News Corp.

Rupert Murdoch, through the Murdoch Family Trust and personal holdings, is the biggest investor in News Corp., controlling about 39 percent of voting shares while owning about 13.5 percent of total shares, according to data compiled by Bloomberg.

To contact the reporter on this story: Edmund Lee in New York at elee310@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net

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