Pre-split trading of shares in "New Newscorp," the print media-heavy spin-out from News Corp began quietly on Wednesday, and it will take a while to work out where the new vehicle is headed.
Is New Newscorp a way for the group to distance its northern hemisphere TV and film businesses from atrophying print media assets that were at the centre of News' telephone hacking scandal, or a way to give the print assets the best possible chance of surviving and growing?
It's a bit of both. The spinout faces structural headwinds, just as Fairfax Media and every other group that owns traditional print media assets does, and the man who will run it, Robert Thomson, says cost cuts are required.
Its print media mix is sweetened by other assets including pay TV in Australia, however, and it enters the world debt-free, and with net cash resources of about $2.6 billion. The part of the old News Corp that is left after the spinout is meanwhile being renamed 21st Century Fox, and goes forward with a cleaner growth profile.
Rupert Murdoch will be chairman and chief executive of 21st Century Fox and executive chairman of New Newscorp. He told investors last month that the split gave him a chance to "do it all over again," but New News is not likely to use its balance sheet to expand as aggressively as News did when Murdoch invaded the northern hemisphere in the '60s, '70s and '80s.
There will be acquisitions, but they are likely to reinforce earnings rather than supercharge them, and dividends are also going to be a priority, albeit unfranked ones in Australia. New Newscorp's first capital management move will actually be a debt-funded $500 million share buyback that will soak up selling by shareholders who inherit a stake in the new company but don't much like print media.
Shareholders get one New News share for every four News Corp shares they own when the split goes live at the end of this month, and the new listed company is a curious amalgam.
It will own the group's US newspaper businesses including The Wall Street Journal's publisher, Dow Jones, a stable of UK newspapers including The Sun, The Times and The Sunday Times, and Australian print media assets including the Herald Sun, Daily Telegraph, Courier Mail and The Australian.
It will also own News' 61 per cent stake in Realestate.com.au, smaller online real estate sites in Europe and Hong Kong, HarperCollins book publishing division, the group's 50 per cent share of Foxtel, owned in partnership with Telstra, and the wholly owned Foxtel content provider, Fox Sports.
The key assets left inside the renamed and still-listed 21st Century Fox are the vertically integrated Fox movie, pay TV and free-to-air TV franchise in America, and pay TV in Europe - Sky Deutschland, Sky Italia and the 39 per cent owned BskyB in the UK.
That is also not a state-of-the-art media industry mix. The internet is a threat to television's business model, too, through video on demand internet services, for example.
However, print media are at the vanguard of the old media guard as internet news and entertainment platforms expand. News' print media businesses collected revenue of $5.1 billion in the nine months to March, but earned only $584 million before interest, tax, depreciation and amortisation, a profit margin of 11.5 per cent that highlights vulnerability to even moderate revenue declines.
As Thomson has flagged, getting costs out is one defence. On the acquisition side, the name of the game will be to shore up print and inject extra growth potential, and while that suggests non-print expansion, some pathways are difficult to negotiate.
Telstra would not be a seller of its half of Foxtel, for example, and a bid for full ownership of Realestate.com.au would be expensive at current market prices. Its shares are up 616 per cent in five years and 62 per cent this year, and it is valued at $3.8 billion, a hefty 35 times expected earnings.
New News could also be a player in print media consolidation and rationalisation. Macquarie Bank says in a report on the split that HarperCollins could buy rivals, and that New News might also buy print media assets such as the Chicago-based Tribune Group. That would need regulatory approval, however, and investors might not take kindly to the idea of a doubling down on print media.
In the sharemarket the split has delivered, so far. Shares in Murdoch's group were trading at $22.37 on June 28 last year when it was foreshadowed. They hit $34.77 at the end of last month, and closed yesterday at $30.53 after New News' debut, down from $32.79 on Tuesday. The New Newscorp shares closed at $14.55 on Wednesday after opening at $15, giving an implied total value of $34.17, taking the one-for-four share split ratio into account.