Stephen Foley: News Corp's shareholders might have to shell out to ditch the PIIGS

 

US Outlook Think of the The Sunday Times as Portugal. The Times (of London, as we say here) as Italy. The Sun as Ireland, The New York Post as Greece, and The Wall Street Journal as Spain. These are the PIIGS of Rupert Murdoch's media empire, News Corp's troublesome periphery.

Dealing with them inevitably involves a massive transfer of funds from the centre.

The old mogul may have been boxed in to agreeing to spin off his newspapers, but he sure as hell isn't giving up on the inky business he loves. News Corp investors who celebrated wildly on news of the split this week might have been celebrating prematurely.

Shareholder value would have been better served by auctioning off the newspapers to the highest bidders, but that could only have happened over Mr Murdoch's dead body. Instead, the plan is to bundle them all – the Wall Street Journal and New York Post in the US, The Times, Sunday Times and Sun in the UK and a slew of Australian titles – with HarperCollins book publishing in a new company, so that News Corp proper can concentrate on its faster-growing and more profitable television and film businesses.

But the demerger plan was announced only half-baked on Thursday. Now the real fighting starts.

For starters, it is not clear that Mr Murdoch is fully on board. Nothing from the News Corp chairman suggests he thinks this is a final plan yet, and since the restructuring will take a year to do he could cool to the idea as quickly as he says he has warmed to it. The question of who will run the publishing business was left open, which is significant.

Most important of all, the financial details matter. The business plan for the publishing division matters. Its revenues have fallen four per cent so far this year, its profits are down 30 per cent, and analysts predict modest-to-scary declines in the business in future years.

Publishing is a challenged business. The printing presses make it, still, a relatively capital-intensive business. In fact, while publishing accounts for about 14 per cent of News Corp earnings, before interest, tax and write-downs, it accounts for about 40 per cent of capital expenditure.

For all these reasons, News Corp shareholders want shot of the publishing division and are likely to dump shares in the new-born publishing company the minute they get them. The stock could plunge and keep plunging.

Meanwhile, the newspapers will no longer be a largely financially irrelevant part of a giant media conglomerate; the pressure to get a grip on their declining fortunes will be intense, and the cost-cutting could be savage. It's little wonder that journalists I've talked to from The Times and the Wall Street Journal see the demerger as nothing but bad news.

Plunging shares and savage cost cuts? Not on Mr Murdoch's watch. The 81-year-old, who started in the newspaper business at his father's knee in Australia, has 12 months to fight for a large transfer of funds from the centre.

A few analysts have already published back-of-the-envelope calculations on what the publishing arm could be worth, and it looks pretty weak. Taking the same earnings multiple as other US newspaper publishers like Gannett gives a valuation of less than $3bn (£1.9bn) – that is less than the $5bn News Corp paid for the Wall Street Journal five years ago.

But such calculations are moot until News Corp decides how much of a subsidy to hand to the business. News Corp debt is staying largely with the main company, it said, and the new publishing group will have a net cash position. How much cash, though, is likely to be the subject of a big fight.

As well as needing a fund to fight legal actions from the phone-hacking scandal and a robust balance sheet to reflect the relatively capital intensive nature of the publishing, Mr Murdoch will argue that he also needs a cushion to help weather the turmoil that newspapers are currently going through without having to slash costs so much they cannot take advantage of new digital opportunities.

In the back of his mind, too, he might also want to have the funds for one final acquisition.

Investors who cheered the split this week will surely come over all Angela Merkel at the idea of throwing yet more of their good money after bad. But it might be the price of ridding News Corp of its PIIGS.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Recruitment Resourcer

£20000 - £21000 per annum + uncapped commission: SThree: As a graduate you are...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: A Customer Service Advisor is r...

Ashdown Group: Trainee Consultant - Surrey / South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Day In a Page

Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot
Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

Poldark star Heida Reed

'I don't think a single bodice gets ripped'
The difference between America and Israel? There isn’t one

The difference between America and Israel? There isn’t one

Netanyahu knows he can get away with anything in America, says Robert Fisk
Families clubbing together to build their own affordable accommodation

Do It Yourself approach to securing a new house

Community land trusts marking a new trend for taking the initiative away from developers
Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

Money, corruption and drugs

The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

150 years after it was outlawed...

... America's first slavery museum is established in Louisiana
Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
Tony Oursler on exploring our uneasy relationship with technology with his new show

You won't believe your eyes

Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

Moores must go. He should never have been brought back to fail again

The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn