Rupert Murdoch’s Empire After Phone Hacking Scandal: The Good, the Bad, the Toxic

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Nomura analyst Michael Nathanson puts all of News Corp.’s newspaper assets into the "toxic" category, while “bad” assets include the conglomerate’s film studio, books and magazine businesses.

NEW YORK – Nomura analyst Michael Nathanson on Monday split up Rupert Murdoch’s News Corp. into three parts – good, bad and toxic - and suggested that management use the current phone hacking crisis to explore a possible sale of assets.

The “toxic” portion, to which he assigned zero market value, includes all U.K. and even U.S. newspaper assets, while the “bad” portion includes the conglomerate's film division, as well as its book and magazine businesses, to which he argued investors assign little value.

The “good” News Corp. mainly consists of the company’s cable networks, broadcast TV and Sky Italia pay TV businesses, according to Nathanson. It would bring in fiscal year 2012 revenue of about $17.3 billion and would under his assumptions be worth $14.54 per share – a vast majority of News Corp.’s end-of-week stock price of $15.64, he estimated.

Referring to News Corp.’s ticker symbol, the analyst said that “the flip side of 'Good NWS' is 'Bad NWS,' which incorporates other assets that investors are concerned about or give little value.”

“Bad” company assets would account for $10 billion in fiscal year 2012 revenue, two-thirds of which would come from the film studio, he estimated. He said these assets’ implied value is $1.10 per share.
“The idea of breaking up News Corp. has long appeared unlikely given management’s unwillingness to both shed assets and end the accumulation of “unwanted” assets,” Nathanson wrote in a report. “However, in recent weeks, the company has jettisoned two non-performing assets - MySpace and the News of the World - and we believe should use this crisis to take another look at its asset mix to determine which divisions are non-core.”

A separation of those businesses has “potential upside for longer-term, value-based investors,” he argued. “Given the unknown of what could still come out from any additional investigations (although for now we believe the risk is limited to just the U.K.), we will take an overly conservative approach and assign a zero multiple valuation to the newspaper segment. However, we are not saying that if News Corp. decided to sell or spin these assets off that they are worthless, but rather believe that under News Corp. ownership they will be given little value.”

Nathanson on Monday also predicted little U.S. regulatory impact from the phone hacking scandal. “Based on what is known currently, we believe the risk of a massive fine due to bribery appears lower than prior Foreign Corrupt Practices Act settlements, while the threat of losing FCC station licenses also seems remote,” he said.


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