The continuing problems at News Corp. (NWS) are leading some to call for a breakup of the company.
But analysts disagree on whether that would benefit shareholders.
A Reuters analysis that the break-up would not unlock value is based on the idea that, while cable and film assets may be worth $41 billion, the other assets (including all the newspapers) are worth no more than the $3 billion in additional value a NWS $43.7 billion market cap would assign them.
Barclays and Gabelli, on the other hand, insist News Corp. currently trades at a 50% discount to its asset value. Gabelli asset manager Lawrence Haverty defended that estimate in an interview earlier this week.
The site 24/7 Wall Street valued a News Corp. break-up at $25 per share back in 2007. But that analysis estimated its newspapers as being worth $7.5 billion, based on a price-earnings multiple of 10. The analysis was also near the market's top, before MySpace became nearly worthless, before the scandal hit the British papers, and before losses at The Times of London and the New York Post became obvious.
Most disagreements over valuation involve the newspapers. The scandal has closed the most profitable unit in the newspaper group, News of the World, and while a new owner might create a Sun on Sunday to recoup some of that money, the New York Post and London Times are money-losers. There are reports in Australia that Lachlan Murdoch, Rupert's oldest son, might buy the Australian papers. But would he buy the British assets, and would British regulators see Lachlan as an acceptable buyer?
News Corp. paid $5 billion for The Wall Street Journal and Dow Jones alone in 2007. Wouldn't they be worth at least $3 billion to, say, Bloomberg today? Or perhaps Reuters?
Rupert's daughter Elisabeth might be an asset buyer, given the fact that she has what was given $600 million in cash from selling her production company, Shine, to News Corp. Or a deal might be made to sell the Fox movie studio to Comcast (CMCSA) or Liberty Media (LCAPA). The studio is very profitable.
The Saudis' Kingdom Holding Co., under Prince Al-Waleed bin Talal, which owns about 7% of News Corp. now, might emerge as a buyer for the film studio or the satellite operations, and might even be in a position to take the rest of BskyB.
But Murdoch was able to get into the U.S. television business in the 1990s only by becoming a U.S. citizen, so American buyers for those units are essential. Given past consolidation of the U.S. market, and the slow economy, it's hard to imagine who might emerge as a potential buy for Fox News and the TV stations, which together hold one-third of the company's value. Time Warner (TWX) already owns a film studio, but the cable assets might be attractive to them. CBS (CBS) would need clearance but the TV stations might be a buy for them – or the stations could be sold piecemeal.
Any sale would take time, and there are some assets - like the online assets and some of the newspapers - that are practically worthless. But if the price of NWS dips again, back toward $15/share, it's hard to see the parts being worth less than the whole.