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News' print assets out on their own

RUPERT Murdoch has bowed to pressure from his shareholders and key executives including his deputy Chase Carey and announced a split of the gigantic group into two separately listed companies one holding its entertainment assets, including Fox television and film, that now account for 75 per cent of revenue and 90 per cent of earnings, and the other holding News' global print media assets.

RUPERT Murdoch has bowed to pressure from his shareholders and key executives including his deputy Chase Carey and announced a split of the gigantic group into two separately listed companies one holding its entertainment assets, including Fox television and film, that now account for 75 per cent of revenue and 90 per cent of earnings, and the other holding News' global print media assets.

Despite speculation in News' own newspapers in Australia that News' Australian assets would be excluded from the carve-up, the split is comprehensive. News' main newspapers in Australia are among those to be hived off to the separate print media business, opening them up more fully to the competitive forces that are being brought to bear by the internet.

News says the split is still not finalised. The board met yesterday and authorised management to explore the separation, News said in an announcement in New York late last night.

But if the split goes ahead as expected, News' Australian titles will be carved out into a new separately listed print media business. The bifurcated News group would comprise a listed television and film focused entertainment company comprising assets including News' cable and free-to-air TV assets in the United States, the Fox film studios, and pay TV networks in Europe, and in England, where News is the

controlling shareholder in BSkyB.

A separate, listed "newspapers and information" business will house newspaper and book publishing and other assets including Dow Jones, The Wall Street Journal, Dow Jones Newswires, HarperCollins, the New York Post, the The Times, The Sun and the The Sunday Times in London and, in Australia, News' main mastheads The Australian, the Herald Sun, The Daily Telegraph and The Courier Mail.

"There is much work to be done, but our board and I believe that this new corporate structure we are pursuing would accelerate News Corporation's businesses to grow to new heights, and enable each company and its divisions to recognise their full potential - and unlock even greater long-term shareholder value," Rupert Murdoch said in New York last night.

THE glass half-empty view of the June 30 profit season that is about to begin is that our 200 biggest companies will report combined earnings that are below those they posted five years ago, before the financial crisis erupted.

The glass half-full view is that the markets know what is coming.

Analyst estimates of earnings for the companies in the S&P/ASX 200 Index have been wound back steadily for nine months, to a point where a merely lousy profit season should be a non-event.

A year ago, the consensus view was that the companies that make up the index would collectively earn $391 a share in the financial year that is now drawing to a close. That outlook held for a couple more months company analysts are notoriously optimistic but then Europe's sovereign debt crisis flared, and signs of a bigger than expected slowdown in China began to appear.

Beijing had induced an economic slowdown to tame inflation at the same time as Europe's mess, and lethargic growth in the US was undermining exports to the West.

Global growth estimates and commodity prices fell as awareness of this spread, and in this country, fears that the eastern states were hitting the wall grew as the Reserve Bank held rates up: it held its cash rate at 4.75 per cent for a year until it cut by a quarter of percentage point in November last year, on its way down to 3.5 per cent.

Expected aggregate earnings for the ASX 200 index had been cut by 7.5 per cent by the end of last year, and they have been lowered by another 7.5 per since then. The ASX 200 index is also down, by about 10 per cent for the year, but the erosion of confidence in earnings is another facet.

One of the key measures of the value the market offers investors is the price-earnings ratio, or P/E. It measures how much investors are prepared to pay for earnings, and it has actually risen in the June half, from 10.3 times expected earnings over the next 12 months to 10.7 times. This increase is a product of weaker earnings estimates however, not a sign of rising core values or improving confidence. The measure is based on expected earnings, and they have also been wound back, by 7.5 per cent in the December half, and by another 6.5 per cent in the June half.

Analysts are, as I said, optimists. Economists in the same firms are invariably more cautious. For that reason alone we have to see the profits before deciding whether the current forecasts are correct. They are closer to the mark than they were six months ago, however, and well below average, here and overseas.

Wall Street's S&P 500 index is trading above Australia's 10.7 times earnings multiple at 12.1 times expected earnings in the next year,

compared with 12.4 times a year ago. The MSCI global index of stocks, a reasonable proxy for markets as a whole, is trading closer to Australia, at 10.4 times expected earnings, down from 11 times earnings a year ago.

Profit downgrades have been uneven in the Australian sharemarket. Estimates of bank earnings have only been nibbled in the past three months, and downgrades of consumer-facing companies including retailers have slowed. In both cases the medicine had already been taken.

The big cuts in the June quarter have been in the resources sector, where commodity price falls are being magnified in $A terms by the Australian dollar's failure to follow commodity prices down.

Gold is almost 11 per cent below its 2012 high, oil is down 11 per cent, aluminium is almost 13 per cent down, copper is 7.7 per cent lower, nickel is 20 per cent below its year high, iron ore is down 9.4 per cent and thermal coal is down 25 per cent.

I don't think there's any relief in sight. The dollar will continue to be propped because it's a safe place in a troubled world, and because Australian yields are still relatively high by global standards. Commodity prices will be weakish until Europe and China's trajectories are known, at least, and consumer demand and

corporate activity will be subdued until we know where Europe and China are headed.

mmaiden@theage.com.au


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