News Corp divides, will it conquer?

Media giant News Corp will split itself in two.

two medieval style warriors wearing armour and carrying shields and swords stand side by side as if joined at the hip with fericious, wide mouthed expressions on their faces as if ready for battle.

Image source: Getty Images

The vote is in. Media giant News Corp (ASX: NWS) will split itself in two. At a shareholder meeting in New York last week shareholders voted overwhelmingly in favour of the plan to split News Corp into two separately listed companies.

News Corp operates a dual-class share structure that has been criticized for allowing the Murdoch family disproportionate control over the business. The Murdoch family owns approximately 7% of the overall business, but because most of this is held via Class B ‘voting shares’, this grants it around 40% of the voting power. The two different classes of investors were aligned in their support of the split, with over 99% of both the Class B ‘voting’ shareholders (ASX: NWS) and the Class A ‘non-voting’ shareholders (ASX: NWSLV) in favour of the separation.

On 28 June, the company will separate into 21st Century Fox and a new News Corp. Existing shareholders will be granted one share in the new News Corp for every four shares currently held in what will from then on be known as 21st Century Fox. The new News Corp will primarily hold the company’s newspaper and book publishing divisions, but will also include the company’s Australian Pay TV operations, its 62% stake in the online real estate advertising company REA Group, and the online education business Amplify. 21st Century Fox will hold the company’s lucrative cable television and film studio operations.

The separation should enhance management’s attention on the underperforming publishing operations, while unshackling the successful media units. In the past year the television and film operations generated around three quarters of the company’s revenue but returned 90% of its profits. Newspapers everywhere have struggled to adapt to the disruption of online news publishing and a simultaneous decline in their core classified advertising revenues.

Times are tough in the newspaper business and News Corp certainly isn’t the only company restructuring its operations in an attempt to improve performance. News Corp’s largest Australian rival, Fairfax Media (ASX: FXJ) has announced significant restructuring in recent weeks that is targeted to cut costs by a further $60 million. Seven West Media (ASX: SWM) announced last week that it too will be undertaking an organisational restructure after posting a loss of $109.3 million in its first half results. Seven West will cut over 100 jobs as part of an effort to reduce its overall costs by at least 5%. The industry is still grasping for a successful response to the existential threat that the internet has posed.

Foolish takeaway

News Corp’s split has received overwhelming support from shareholders, who see it as a necessary step to turnaround performance. The separation is intended to improve the publishing operation’s results, while freeing up the television and film units for further growth. The move makes a lot of sense as a means to focus management attention on the difficult decisions that will be necessary to ensure the survival of the newspaper business. Time will tell if this is the beginning of a publishing renaissance for the new News Corp, or just another chapter in its decline.

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Motley Fool contributor Matt Joass does not own shares in any of the companies mentioned in this article.

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