Resurgent News Corp hungry for acquisitions

NEWS Corporation is starting to look like its old self again.

By InvestSMART · 21 Nov 2012

By InvestSMART ·
21 Nov 2012

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NEWS Corporation is starting to look like its old self again.

The media conglomerate, which had been on its heels for more than a year because of a phone hacking scandal in Britain, is looking to make acquisitions. First on the list could be a 49 per cent stake in the Yes Network in New York, a purchase that could aid in the formation of a nationwide sports network to compete with ESPN.

News Corp's stock has reached highs as the company prepares to transfer its underperforming publishing assets, including newspapers such as The Wall Street Journal and the New York Post, into a separate publicly traded entity.

One of the crucial factors in the decision was that the split would allow Rupert Murdoch, the company's chairman and chief executive, to buy into the businesses he loves without upsetting investors who are more interested in cable and broadcast. Potential targets include the Los Angeles Times, the Chicago Tribune and more education companies.

"Rupert has his mojo back," said Todd Juenger, a media analyst at Sanford C. Bernstein. "The stock is up, investors are happy with the company's recent decisions."

In the past several weeks, Mr Murdoch has exuded a satisfaction and sure-footedness that people close to the company said they had not seen since before News' British newspaper unit became embroiled in the phone hacking scandal. That is in part because hacking has been overtaken in the press by an unfolding scandal at the BBC.

The BBC, which Mr Murdoch and his son James have frequently criticised, is accused of cancelling a news program's segment about child molesting said to have been committed by long-time host Jimmy Savile, and broadcasting false reports of paedophilia about a member of Margaret Thatcher's administration.

As News Corp sank into its hacking scandal last year, it delayed new acquisitions. In September, Britain's Office of Communications, known as Ofcom, said that BSkyB, 39.1 per cent owned by News Corp, was "fit and proper" to hold a broadcast licence. The decision removed a cloud of uncertainty at News Corp's Manhattan headquarters and cleared the company to revisit deals, analysts said.

Dropping its $12 billion bid for the portion of BSkyB that it did not already own gave News Corp ample cash to complete share buybacks and consider other acquisitions.

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Frequently Asked Questions about this Article…

What acquisitions is News Corp reportedly pursuing and how could they affect investors?

The article says News Corp is resuming acquisition activity, with a possible first move being a 49% stake in the Yes Network in New York. That stake could help form a nationwide sports network to compete with ESPN. Potential targets also include newspapers such as the Los Angeles Times and the Chicago Tribune and more education companies. For investors, these moves signal a renewed growth strategy and the potential for higher returns if deals succeed.

Why has News Corp's stock reached new highs according to the article?

News Corp's stock has climbed as the company prepares to transfer underperforming publishing assets (including The Wall Street Journal and the New York Post) into a separate publicly traded entity. Analysts in the article say that the planned split, plus recent management decisions and the prospect of acquisitions and share buybacks, have made investors more confident.

What does the planned split of News Corp's publishing assets involve and why does it matter?

The article explains News Corp intends to move its underperforming publishing assets — newspapers such as The Wall Street Journal and the New York Post — into a separate publicly traded company. This split would allow Rupert Murdoch to invest in the publishing businesses he prefers without unsettling investors who are more focused on the company’s cable and broadcast operations.

How would a 49% stake in the Yes Network fit into News Corp's strategy?

According to the article, buying a 49% stake in the Yes Network could be a stepping stone to building a nationwide sports network that competes with ESPN. It aligns with News Corp’s emphasis on cable and broadcast assets and would expand its sports-media footprint.

How did the phone hacking scandal affect News Corp's business plans?

The phone hacking scandal in Britain put News Corp on the defensive and delayed new acquisitions for more than a year, the article says. As the scandal’s prominence faded and other industry scandals emerged, the company has begun revisiting deals and strategic moves.

What was Ofcom's decision about BSkyB and why is it important for News Corp investors?

Britain’s communications regulator Ofcom declared that BSkyB — 39.1% owned by News Corp — was "fit and proper" to hold a broadcast licence. The article notes this decision removed a major cloud of uncertainty for News Corp and cleared the way for the company to consider new deals and investments.

Why did News Corp drop its $12 billion bid for the remainder of BSkyB and what did that enable?

The article reports that News Corp abandoned its $12 billion bid for the portion of BSkyB it did not already own. Dropping that bid freed up cash, which the company has used for share buybacks and to consider other acquisitions.

Is Rupert Murdoch perceived as regaining control at News Corp, and what does that mean for shareholders?

Several people quoted in the article say Rupert Murdoch has "his mojo back," showing more confidence and sure-footedness than during the hacking crisis. For shareholders, that renewed leadership confidence is associated with clearer strategic direction — the asset split, potential acquisitions and share buybacks — which has helped lift investor sentiment.