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Published 07 February 2013 01:18, Updated 07 February 2013 08:48
Market reaction to Rupert Murdoch’s grilling at the Leveson phone hacking inquiry shows there is still a view that News Corp has a bright future. Photo: AFP
Lost amongst the furore surrounding News Corporation’s hacking scandal was the quiet, steady march of its shares. As Rupert Murdoch’s most trusted executives were arrested, as his son James was slated by regulators and politicians alike and as Rupert himself suffered the indignity of being hit with a cream pie, News Corp’s stock rose. Over the past 12 months the company’s market value has risen by 50 per cent to $66 billion.
Does this suggest the market doesn’t really care about the phone hacking scandal? Possibly. Does it suggest the market still sees a bright future for News Corp? Absolutely.
The problem for Rupert Murdoch is that the future investors want for News Corp doesn’t involve the newspaper businesses he holds so dear. Later this year the empire that Murdoch has worked for more than 50 years to create will be split in two.
In the red corner is “good” News Corp, to be known as Fox Group; it will contain the group’s entertainment businesses, including its US cable television division and movie business.
In the blue corner is “bad” News Corp, to be known at this stage at least as “new” News Corp; it will contain the group’s newspaper businesses in Australia, Britain and the United States, its publishing divisions, its education business and a big stake in Australian pay TV group Foxtel.
The discrepancy in valuations between the two underlines the value the market believes will be unlocked when the Fox Group assets are no longer weighed down by Murdoch’s old media businesses. Last week Morgan Stanley valued Fox Group at $31.83 a share and the new News Corp at $3.73 a share.
Given News Corp shares are currently around $27, it’s clear that many analysts see the split as a way of creating real value.
While Murdoch will act as chairman of both companies once the split is completed, there is no doubt his focus will be on new News Corp and particularly its old, old newspapers.
No one believes he can save the newspaper business, but that is not going to stop him trying.
While the News Corp split means Murdoch will no longer be able to hide loss-making newspapers behind his profitable entertainment businesses, it will mean the newspapers are unencumbered by debt and relatively cashed up.
Far from shrinking his newspaper assets, most commentators expect Murdoch will actively start hunting for new ones to buy, particularly in the US, where valuations are (quite rightly) very cheap.
To many, the idea of buying newspapers is like throwing good money after bad. But to Murdoch, it could be the chance to build a new empire – and prove his legions of doubters wrong.
In all likelihood, the doubters are right. Murdoch can’t save newspapers and turning new News Corp into a profitable, growing business looks near on impossible.
But it will be fascinating to watch one of Australia’s greatest ever entrepreneurs try.