News Corp. unveiled plans Monday to sell to the public 20% of its film, broadcasting and sports assets--including the newly acquired Los Angeles Dodgers--in a stock offering that could raise up to $2 billion for the expansion-minded, Australia-based media giant.
By year-end, the company plans to take public a new company called the Fox Group. In addition to the Dodgers, the company will include such operations as the Fox TV network, home to such shows as "X-Files," "Ally McBeal," "King of the Hill" and "The Simpsons," and the 20th Century Fox movie studio, which released such films as "Dr. Dolittle" and bankrolled most of the huge hit film "Titanic."
Last year, broadcasting and film accounted for about half of News Corp.'s $13 billion in revenue.
Wall Street has been pushing News Corp. Chairman Rupert Murdoch to separate his more mature newspaper and book publishing operations from his faster-growing entertainment assets to tap into the higher values investors are paying for those interests.
"This is a way for Murdoch to unlock the hidden asset values that exist in television," said Christopher Dixon, an analyst at Paine Webber Inc. "Should it be valued comparably to CBS, Time Warner or Viacom, the new group would have a $16-billion to a $20-billion value."
Wall Street greeted the news enthusiastically, driving up News Corp.'s American depositary receipts that trade on the New York Stock Exchange by $3.56, or about 10%, to $33.06.
While News Corp. said the proceeds would be used to reduce its $8.4 billion in debt and finance the buyback of its stock, analysts and investors speculated that the war chest of capital, added to the $800 million in cash from the recently announced sale of TV Guide in a $2-billion deal, could fund new acquisitions.
Sources say News Corp. may be preparing to buy out its cable partners in PrimeStar Inc. The Justice Department recently sued to block the satellite TV provider from purchasing Murdoch's orbital satellite slots on antitrust grounds. In the agency's view, putting the last valuable orbital slot into the hands of PrimeStar's cable owners, which include Time Warner, Comcast and Cox Communications, is not the best way to stimulate competition in the cable industry.
News Corp. would not disclose details of the coming offering, such as how much debt will be shifted to the new company, but it will retain an 80% interest, meaning the Fox Group will continue to be Australian-owned and Murdoch will retain firm control over the operations.
The 20th Century Fox portion of the company includes both the film studio and TV production. The Fox Television Group includes both the network and the group of 22 stations. Also included in the group are cable channels that it owns fully or in partnerships, including FX, a chain of regional sports networks, Fox Family Channel and Fox News Channel. Fox's sports interests include the Dodgers, as well as interests and options in several other professional sports teams.
News Corp.'s flagship newspapers in Australia and Britain, as well as the New York Post, would remain part of the parent company, as would the HarperCollins publishing group and various satellite television assets such as the money-losing StarTV, which operates in Asia.
In a report to clients earlier this month, Merrill Lynch analyst Jessica Reif Cohen called News Corp. "the least expensive entertainment stock by a wide margin," and urged the company to separate its publishing and entertainment units to unlock hidden value.
While most entertainment stocks are trading at 11 to 14 times 1998 cash-flow estimates, Cohen said News Corp. is lagging at about eight times cash flow.
She said the discount stems from the company's complicated financial structure, in which 40% of its value is in assets that are not consolidated into News Corp.'s balance sheet, making valuation difficult.
Another reason investors are believed to shun News Corp. is its status as a foreign stock.