Analysts Chime in on News Corp. Bid for Australia's Consolidated Media

5:56 AM PST 06/20/2012 by Georg Szalai

UPDATED: Wall Street observers call the $1.9 billion acquisition play "a good idea" and expect it to add to the company's earnings, but expect a drawn out regulatory review.

News Corp.'s $1.9 billion takeover offer for James Packer’s Consolidated Media in Australia is a smart strategic play, but could involve a drawn out regulatory review, Wall Street analysts said Wednesday.

The proposed deal would boost the stake that the Rupert Murdoch-controlled company owns in pay TV giant Foxtel to 50 percent and give it full ownership of Fox Sports Australia.

"The deal is consistent with News Corp.'s recent strategy of buying the stakes that it didn't already own in other international sports assets, such as Fox Pan American Sports and ESPN Star Sports," said Barclays Capital analyst Anthony DiClemente. "We believe News Corp. finds sports content becoming increasingly valuable, particularly as more content is viewed on a time-shifted basis."

And he added that investors should not fear a potential re-focusing of News Corp. on major acquisitions that have sometimes caused an investor backlash, such as in the case of the purchase of Dow Jones.

"While some investors may interpret this move as a resumption of News Corp.'s acquisitive nature under Rupert Murdoch's corporate governance, we note that the proposed acquisition fits within News Corp.'s stated mid-teens [investment] return profile and will likely be accretive to earnings," DiClemente said.

Davenport & Co. analyst Michael Morris said the deal continues News Corp.'s "path of growing its global pay TV business - an area of both the greatest strength and the greatest opportunity for the company - and consolidating equity holdings that both we and the company believe were being undervalued by investors."

Wells Fargo analyst Marci Ryvicker highlighted that News Corp. on Wednesday also announced a restructuring of its Australian publishing business by reducing its divisions from 19 to five with job cuts in sales, marketing, finance and administration. "Bottom line, we like the steps News Corp. is taking to monetize its joint venture assets, and reduce its footprint in less profitable businesses such as publishing," she said.

Canaccord Genuity analyst Thomas Eagan even argued that the deal "appears accretive" to News Corp.'s earnings.

Others also lauded the planned transaction, but added some cautionary comments.

"It is a good idea to have greater control, but regulatory approval will be difficult," Miller Tabak analyst David Joyce said about the Consolidated bid. "It just took a year for Foxtel to acquire Austar from [John Malone's] Liberty Global, held up because of News Corp. hacking scandal concerns."

Wunderlich Securities analyst Matthew Harrigan echoed that "people are always wary on News Corp. M&A, but [it is a] good deal strategically."

But Harrigan said the Consolidated bid may also be "a tacit admission that more BSkyB [ownership] is now implausible" following the phone hacking scandal-driven withdrawal last year of a bid to raise the conglomerate's stake from 39 percent to 100 percent.

DiClemente echoed the view that the deal makes sense for the entertainment conglomerate. "News Corp. is a natural buyer for CMH given that News Corp. already has stakes in Foxtel and Fox Sports Australia," he said in a report. "The proposed acquisition would bolster News Corp.'s sports content portfolio...and not impact the current [stock] buyback," which is popular with investors because it boosts earnings per share results.

Email: Georg.Szalai@thr.com
Twitter: @georgszalai

comments powered by Disqus