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
election 2015The 10 best quotes of the campaign
A caravan being used as a polling station in Ford near Salisbury, during the 2010 election
election 2015The Independent's guide to get you through polling day
David Blunkett joins the Labour candidate for Redcar Anna Turley on a campaigning visit last month
voicesWhat I learnt from my years in government, by the former Home Secretary David Blunkett
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

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

Guru Careers: Management Accountant

£27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...

Guru Careers: Project Manager / Business Analyst

£40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...

Day In a Page

General Election 2015: ‘We will not sit down with Nicola Sturgeon’, says Ed Balls

'We will not sit down with Nicola Sturgeon'

In an exclusive interview, Ed Balls says he won't negotiate his first Budget with SNP MPs - even if Labour need their votes to secure its passage
VE Day 70th anniversary: How ordinary Britons celebrated the end of war in Europe

How ordinary Britons celebrated VE Day

Our perception of VE Day usually involves crowds of giddy Britons casting off the shackles of war with gay abandon. The truth was more nuanced
They came in with William Caxton's printing press, but typefaces still matter in the digital age

Typefaces still matter in the digital age

A new typeface once took years to create, now thousands are available at the click of a drop-down menu. So why do most of us still rely on the old classics, asks Meg Carter?
Discovery of 'missing link' between the two main life-forms on Earth could explain evolution of animals, say scientists

'Missing link' between Earth's two life-forms found

New microbial species tells us something about our dark past, say scientists
The Pan Am Experience is a 'flight' back to the 1970s that never takes off - at least, not literally

Pan Am Experience: A 'flight' back to the 70s

Tim Walker checks in and checks out a four-hour journey with a difference
Humans aren't alone in indulging in politics - it's everywhere in the animal world

Humans aren't alone in indulging in politics

Voting, mutual back-scratching, coups and charismatic leaders - it's everywhere in the animal world
Crisp sales are in decline - but this tasty trivia might tempt back the turncoats

Crisp sales are in decline

As a nation we're filling up on popcorn and pitta chips and forsaking their potato-based predecessors
Ronald McDonald the muse? Why Banksy, Ron English and Keith Coventry are lovin' Maccy D's

Ronald McDonald the muse

A new wave of artists is taking inspiration from the fast food chain
13 best picnic blankets

13 best picnic blankets

Dine al fresco without the grass stains and damp bottoms with something from our pick of picnic rugs
Barcelona 3 Bayern Munich 0 player ratings: Lionel Messi scores twice - but does he score highest in our ratings?

Barcelona vs Bayern Munich player ratings

Lionel Messi scores twice - but does he score highest in our ratings?
Martin Guptill: Explosive New Zealand batsman who sets the range for Kiwis' big guns

Explosive batsman who sets the range for Kiwis' big guns

Martin Guptill has smashed early runs for Derbyshire and tells Richard Edwards to expect more from the 'freakish' Brendon McCullum and his buoyant team during their tour of England
General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'