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One of the hallmarks of special situation investing that I learned from Joel Greenblatt is looking at the "junk". And at first glance, the New News Corporation (NWS) is full of it. We all know the story. Newspaper businesses are dying and have been a thorn in the side of Newscorp investors for the past decade. If it wasn't for Rupert's nostalgia for the industry, the businesses would have been sold off years ago. Now, thanks to this much anticipated spinoff, investors have a chance to separate the newspaper businesses from the entertainment and broadcasting businesses, which will be renamed Fox Group. Fox Group's institutional investors will sell their New Newscorp shares faster than the Post comes up with another witty headline about the misfortune of the Jets.

However, after digging a bit deeper into the newly filed PRE14A, this business should not be dismissed so easily. The first misconception is that newspapers are bleeding money. Not true. The News and Information Service division had $939 million of EBITDA for the year ended June 30, 2012. Circulation and subscription revenue actually increased by $2 million compared to last year. An 11% decline in advertising revenue primarily took place at the Australian newspapers. What this tells me is that the WSJ and Barrons publications are stable, if not growing at a moderate pace. The WSJ has 2.3 million digital and print subscribers and is the leading circulation daily paper in the US. The Sun and The Times also account for almost one third of national newspaper sales in the UK.

What has emerged after all the smoke has cleared is a set of newspaper properties that are far from bloated and poised to capitalize on the next era of digital news delivery. Further, a suite of information services including Dow Jones Newswire, Factiva, MarketWatch, and AllThingsD are firmly entrenched in the digital conversation. Yes, some things are still questionable. I'd sell the New York Post as soon I could. But overall, fledging papers like The Post are only a small part of the New Newscorp empire. Out of the 11 newspapers included in New Newscorp, most provide premium unique content that subscribers will pay for.

So what else is included in the New Newscorp? 61% of REA Group Limited, a leading digital advertising business specializing in real estate services. REA operates realestate.com.au, which receives almost 20 million hits per month. The entire portfolio , also comprised of websites in Europe, receives over 30 million hits per month. The sales of advertising on this network generated $129 million in EBITDA for fiscal 2012, an increase of about $25 million from 2011.

New Newscorp also holds the HarperCollins book publishing segment, which owns a number of key titles and is firmly growing the digital publishing business. HarperCollins contributed $86 million in EBITDA for FY 2012, an $8 million decrease from FY 2011.

Now it gets interesting. Why would a spinoff expressly designed to dump off all the "junk" assets include Fox Sports Australia, a business which would seem to fit perfectly in the Fox Group parent? Well, New Newscorp also owns 50% of Foxtel, Australia's largest pay TV provider, in a deal that just closed a few months ago. This may prove to be a fantastic opportunity to capitalize on something that others may miss.

Through the Foxtel acquisition, Newscorp just completed the purchase of the final 50% of Fox Sports Australia bringing its ownership percentage to 100% and firmly placing one of the jewels of Australian sports programming in New Newscorp shareholders hands. Fox Sports Australia streams all National Rugby League, Australian Football League, English Premiere League, Australian and International Cricket, NFL and NBA games over six channels. Fox Sports Australia reaches over 2.2 million subscribers, with the potential to reach over 7 million. Because the deal just closed, no earnings from the FOX Sports segment were included in the financials of the PRE14A, but Foxtel reported $2.28 billion of revenue in FY 2012, to which New Newscorp would be entitled to half.

Lastly, Newscorp is also a player in the education space, as it is currently developing its Amplify digital education platform. This could prove to be a winner in the future. The trends are certainly favorable, although the business is too young to evaluate.

Evaluating the leadership and compensation structure is also critical to evaluating spinoffs. Judging by the appointment of Robert Thomson as CEO, it is clear that Rupert is taking the success of New Newscorp very seriously. There were early rumors that Rupert would bring in his son Lachlan to run the new company. But Lachlan is unproven and inexperienced enough that his appointment as CEO would have raised a few red flags for me. But by bringing in Mr. Thomson, who has done a fantastic job of turning around the WSJ since 2008 and is only 51 years old, Rupert is sending a message that he wants an experienced leader in the role and is willing to poach his star from the WSJ.

Unfortunately I was not able to find out how many options Mr. Thomson will be given in the new company. This information will be critical to evaluating his compensation structure and should be available in a few months. While his base salary of $2 million and targeted bonus of $2 million are fair, a sizeable option stake would be another very positive sign that all incentives are aligned.

It is clear that the headline loss of $2bn New Newscorp reported should not scare investors, as it includes $2.7bn of restructuring and impairment charges and does not even include revenue from Fox Sports Australia. Further, the parent is capitalizing New Newscorp with $1.1 billion in cash to get them started, and I would expect to see continued investment in the digital platform and Amplify, along with a few small acquisitions.

After the dust settles and the initial selling pressure ebbs, take a serious look at the new shares when they price this summer. Any EV/EBITDA valuation below 6.5 would trigger a buying opportunity.

Source: The New News Corp. Might Be Worth A New Look