Analysts: Sale of Stake in Pay TV Tech Firm NDS Positive for News Corp.'s Stock

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One analyst says the price tag means a "significant premium to book value," and another says it "would be upside" to the conglomerate's market value.

NEW YORK - Rupert Murdoch's News Corp. will see a financial windfall from technology giant Cisco's announcement Thursday that it will acquire pay TV technology firm NDS Group, in which the conglomerate owns a 49 percent stake, for $5 billion.

"We believe the NDS sale is good for News Corp. shareholders," said Wells Fargo analyst Marci Ryvicker.

Sanford C. Bernstein analyst Todd Juenger said the price tag, $4 billion in cash and $1 billion in debt, means a "significant premium to book value." And Michael Morris, analyst at Davenport & Co., echoed that the successful sale "would be upside" to News Corp.'s stock market valuation. "NDS is one of News Corp.'s many unconsolidated investments that the company believes are undervalued in the current share price, but is also the largest of its non-public investments by our estimate," he said.

News Corp. president, COO and deputy chairman Chase Carey has repeatedly said that the company wants to streamline some of its ownership stakes in other businesses as Wall Street often doesn't give companies full credit for them.

News Corp.'s Class A stock gained and hit a new 52-week high of $20.38 on Thursday.

Morris currently estimates that the stake in NDS, which provides video software and content security solutions, amounts to $1 billion of the $3.5 billion in private investments held by News Corp. and $13.6 billion in total unconsolidated investments. Morris said the current News Corp. market capitalization is about $50 billion. Importantly, the deal "would imply about $2 billion in equity value for News Corp., "double the current value in our model," he highlighted.

Private equity firm Permira Advisors is the controlling shareholder of NDS with a 51 percent stake, but News Corp.'s minority stake means it will get proceeds of $2.45 billion, Ryvicker said. Morris said that would amount to $1.4 billion-$1.5 billion in after-tax proceeds. Juenger estimates a $1 billion profit for News Corp. The transaction is expected to close in the second half of the year.

Analysts also suggested that the NDS deal will focus investors on the use of cash on stock buybacks again. "While monetization of undervalued assets is a positive, additional cash on hand will intensify the focus on the company's capital return intentions," Morris said.

Cisco said the NDS deal allows it to shore up its video business. "Our strategy has always been driven by customer need and on capturing market transitions," Cisco chairman and CEO John Chambers said. "Our acquisition of NDS fits squarely into this strategy, enabling content and service providers to deliver new video solutions that leverage the cloud and drive new monetization opportunities and service differentiation."

News Corp. has been an owner in NDS for a long time. In 2009, in a $3.6 billion deal, the company and Permira took NDS private.


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