Analysts: Financial Impact of News of the World Shutdown on News Corp. Is Minimal

Rupert Murdoch
Rupert Murdoch
 Scott Olson/Getty Images


NEW YORK - Shutting down the News of the World won't have any material financial impact on Rupert Murdoch's media conglomerate News Corp. given its vast reach and the fact that a majority of its profitability comes from its cable networks division, according to analysts.

One analyst even estimated that the impact of the loss of the paper on News Corp.'s stock market value is 25 cents per share at the most.

News Corp. shares closed down 0.2 percent at $17.43, given the company a market capitalization of $46.2 billion, according to Bloomberg data.

The company has been believed to be making money from its tabloids. Analysts estimate though that the NOTW only had a minimal financial impact on the conglomerate, and News Corp. faced the risk of a slow and extended financial decline amid disappearing advertisers.

Plus, sacrificing NOTW may help it save its plan to acquire full control of pay TV outfit BSkyB and its billions in revenue and strong cash flow.

"We view this somewhat unexpected move as justifiable for a politically and legally sensitive matter that could threaten final regulatory clearance for News Corp.'s BSkyB bid amid the specter of ad boycotts for a publication with otherwise negligible financial implications," said Tuna Amobi, analyst at Standard & Poor's Equity Research.

Collins Stewart analyst Thomas Eagan in a report Thursday afternoon echoed that the impact from the NOTW shutdown was "minimal." Reiterating his "buy" rating on News Corp. shares and his $25 target price, he said: "We estimate there is minimal impact to News Corp.'s valuation with the shutting down of the News of the World following the allegations of new phone hacking charges. Furthermore, we see the newspaper closing as an important sacrifice in an effort to reduce additional delay in the BSkyB deal approval process."

Wunderlich Securities analyst Matthew Harrigan also said that the NOTW was "not a major asset." He estimated that the company's U.K. newspapers make maybe $150 million-$175 million in annual operating profit. "NOTW is the smallest component relative to the others," he said. "It is not material at all," though there has been "colossal image fallout," he added.

Meanwhile, Eagan estimated that the end of the NOTW could hurt News Corp.'s stock market valuation by 25 cents per share at the most, a small portion of his $25 target price.

How did he get to that figure? Estimating that News Corp.'s publishing division is worth approximately $5.5 billion and that the U.K. publishing business makes up 22-24 percent of that value, he arrived at a $1.2 billion-$1.3 billion, or 49 cents per share, value. "Should we assume that [NOTW] is 50 percent of the U.K. publishing business (a generous assumption), shutting down [NOTW] would impact the value by approximately 25 cents per share," he explained.

Earlier in the day, before the shuttering of the NOTW was announced, Nomura analyst Michael Nathanson had also maintained his "buy" rating and $21 target price on News Corp. "Perhaps ironic is the fact that the least valued division of the corporation by investors is creating the most negative headlines - U.K. Newspapers," he said.

Email: Georg.Szalai@thr.com

Twitter: @georgszalai
 

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