Parting ways with things is usually a difficult thing to do, whether it's a girlfriend, your first car, or even your favorite foods when starting a diet. Almost always subtracting that something from your life might end up being a good thing, because you end up learning that thing wasn't too good for you, allowing you to learn and grow from the experience and that's what I'm going to focus on, the growth potential of News Corp (NWSA) in parting ways with one of its business units.
Within the past year I have subscribed to this theory twice, the ConocoPhillips (COP) and Abbott (ABT) breakups. In the Conoco breakup you got shares of Phillips 66 (PSX), Conoco retaining the upstream portions of the oil business and Phillips 66 keeping the downstream portions. From this breakup COP itself is up 1.0%, but PSX is up 95.9%! In the ABT scenario you received shares in Abbvie (ABBV), ABBV maintaining the legacy pharma business and ABT holding onto the nutritional/medical device segments. From this particular expedition ABBV is up 7.4% and ABT is 9.5%. Another example in the past couple of years includes Marathon Oil (MRO) up 5.2% and its downstream counterpart Marathon Petroleum (MPC) up 121.6%! Taking a look at the table below shows massive gains in the portion of the company that spun off from the parent company when compared to the S&P500 (SPY). I can name a few other examples, but the MRO deal which took place a couple years earlier is what spurred me to partake in the COP and ABT breakup plays. I haven't participated in any other breakup plays because I wasn't really interested in the other breakups.
I found a pretty cool site that I've been utilizing which shows all the upcoming spin-offs to try and pick up some other potential winners like the three examples above. One company I spy is NWSA; I like this play in particular because I've noticed all the media companies have been on a tear within the past year with lots of transactions taking place. Disney (DIS) has been picking up Marvel Comics & Lucas Films, General Electric (GE) sold NBC Universal to Comcast (CMCSA), and quite a few other moves.
5 year gain
What do these media transactions have anything to do with the breaking up method I mention in my first paragraph, you ask? I'll tie it all together for you now… NWSA is comprised of a few major segments; cable network programming, filmed entertainment, television, direct broadcast satellite tv, and publishing. Do you notice which of the NWSA business segments I listed isn't like any of the other companies I listed in the preceding paragraph? If you guessed the publishing segment you are 100% correct. NWSA obviously spotted the trend of its peers and realizes that it has room to catch up to them, hence it is attempting to transform itself into a pure tv/media content play by shedding the publishing portion of the company. Of late the printing industry hasn't been doing too well either because of obvious reasons, mainly why would anyone bother reading the paper version of the news when they can get the same content on the internet. Taking a look at publishing giants Gannett (GCI), New York Times (NYT), and Washington Post (WPO) we see that indeed the publishing business has taken a beating, hence the reason for NWSA getting rid of the publishing business.
5 year gain
By transforming itself into a pure media content play, NWSA is seeking huge growth potential by loosening itself from the ball and chain that's been hampering it for the past 5 years or so. In other similar noteworthy news, McGraw-Hill (MHP) was going to spin off its publishing portion of the company for the same effect at the end of 2012 and also saw its stock price escalate higher because of the news. However, MHP did not end up spinning off the publishing portion because it ended up finding a buyer for the unit, which essentially provides the same kind of synergy as a spin-off. I am long NWSA based on the topics I've discussed here and when the split takes place I would be a seller of the publishing company shares.
Additional disclosure: I have no position in NWSA but will initiate a long position over the next 72 hours.