Back in 2013, Rupert Murdoch decided to split Fox from a print-focused News Corp. The rationale at the time was to free the profitable Fox from the financial drag of the publishing business, which was experiencing headwinds as advertising dollars were migrating online.
Fast-forward to 2022, and Murdoch now wants to recombine what is left from Fox (after it sold assets to Disney) with News Corp. In the meantime, News Corp has transformed into a collection of high-quality media assets including Dow Jones (which includes The Wall Street Journal, as well as a high-margin professional information business), stakes in digital real-estate platforms REA Group and realtor.com, HarperCollins (book publishing), Foxtel (Australian Pay-TV), and various news properties (the New York Post and several leading newspapers).
How much is it all worth? It’s hard to come up with a precise figure for this hodge-podge collection of assets, but I have a hard time getting to something below $25 and think it’s probably worth somewhere around $30. Irenic Capital (which owns 2% of News Corp) argues that the company is worth $34; and the sell-side average is around $29; while current share price is $18:
I find Irenic a little too aggressive given current market conditions, but clearly there is a case to be made for a fair value somewhere between $25 and $30, or approximately a 50% premium to the current share price.
Of course, sum-of-the-parts usually only works when something is done to realise value. In this case, it might be Murdoch’s desire to recombine News Corp with Fox. After the company announced the formation of a special committee to begin exploring a potential combination with Fox, some of News Corp’s largest shareholders have started expressing concerns on a potential offer that would underestimate News Corp’s value and may be assessed by a not-so-independant committee:
Irernic Capital (2% ownership) sent a letter to the board, arguing News Corp is worth $34 and that the committee should explore all options to maximise value (including a separation of the digital real estate public stakes).
Independent Franchise Partners (7% ownership of both News Corp and Fox), followed the same path and said they would not oppose a recombination, but that it needed to value News Corp over $30 per share, possibly by selling or separating some of its businesses first.
T. Rowe Price (18% ownership) followed suit, with essentially the same arguments.
Murdoch has approximately 40% of the voting rights at New Corp. A deal would need to be approved by a majority of the remaining shareholders, and with just the three listed above we are getting to ~45%. So it is safe to say that a lowball offer would likely not go through.
These three key shareholders seem to all be aligned on News Corp’s value (over $30), are not opposing a deal altogether, and have expressed similar value-enhancing options to the board (e.g., spinning off the digital real-estate public stakes).
On the Murdoch’s side, this deal seems to be highly strategic, and may be a succession-planning play. In terms of business quality, News Corp has the stronger hand vs. Fox.
Given all this, there seems to be a non-zero chance that a significant premium could be offered for News Corp in the coming weeks. If not, News Corp shareholders will keep a (mostly) high-quality collection of assets at an undemanding valuation, with the added benefit of having influential shareholders already agitating for alternatives to realise value.