One interesting aspect of the separation of Twenty-First Century Fox (ASX: FOX) and News Corp (ASX: NWS) is that the cable television and film assets all went to Fox, with the exception of the Australian investment in Foxtel. Intuitively, it would have made sense to put Foxtel with the other cable television assets, but it is instead owned by News Corp.
One possible explanation for the counter-intuitive move is that Rupert Murdoch would like Twenty-First Century Fox to be able to buy Ten Network Holdings (ASX: TEN). The Sydney Morning Herald recently reported that Rupert Murdoch is said to be talking to parliamentarians about acquiring the free-to-air network. However, News Corp has refuted this claim, declaring that Murdoch "has not spoken with the Government, regulators or legislators about acquiring the Ten Network."
I'm not completely discarding the rumours. It's quite possible for Rupert Murdoch to communicate with regulators and legislators through intermediaries without speaking directly with anyone. I also think that the separation of News Corp and Fox might be sufficient political cover for Twenty-First Century Fox to buy Ten. While Fairfax speculates about a News Corp takeover of Ten, I believe that it is more likely that Fox would buy the company.
Rupert Murdoch's son, Lachlan Murdoch, is a major shareholder in Ten. Indeed, Murdoch has a history when it comes to buying his children's assets: News Corp paid well over $650 million for daughter Elizabeth's company, Shine Group. News Corp was subsequently sued for the so-called 'nepotism' and settled the dispute in 2013. The insurance company paid.
Lachlan Murdoch became interim CEO of Ten Network Holdings in 2011 after becoming a major shareholder. He is now the chairman of the company. At the beginning of 2011, Ten's share price was hovering above $1; it now languishes below 30 cents, and the company made a loss in FY 2013.
Twenty-First Century Fox, however, is a far more attractive investment. The company owns an enormous cable television network as well as the copyright to iconic series such as The Simpsons and How I Met Your Mother. Fox recently announced revenue of $7 billion and net operating income of $1.255 billion for the quarter to September 2013.
I don't think that Ten Network is an attractive investment although the prospect of a takeover would be a boon for shareholders. On the other hand, Fox has a market capitalisation of about US$75 billion, and looks set to earn at least $5 billion in FY 2014. That's a reasonable price for a high quality business, in my opinion.