* Australian publishing assets mostly to blame
* Board formally approves split into two companies
By Jennifer Saba
May 24 News Corp said on Friday it will
write down the value of its Australian and U.S. publishing
assets by up to $1.4 billion, as the company prepares to split
its business between its newspaper and entertainment operations.
The company said the goodwill impairment charge was
primarily for its Australia newspapers though it gave no more
details. It also said it expected reduced cash flows in the
The charge will be taken in the quarter ending June 30 and
could effectively wipe out News Corp's profit. Analysts were
expecting News Corp to report a pretax profit of $1.4 billion,
according to Thomson Reuters I/B/E/S.
Earlier on Friday, News Corp said its board authorized a
$500 million stock repurchase program for the publishing
operation, partially answering the question of how the new News
Corp will use $2.6 billion in cash it will have when the spinoff
takes place, expected to occur on June 28.
News Corp is preparing to hive off its publishing assets as
newspapers around the world face unprecedented challenges
because of plunging advertising revenue and readers who
increasingly prefer to read news on smartphones and tablets.
News Corp publishes 140 newspapers in Australia including
The Australian. Its U.S. assets include the New York Post, Dow
Jones' The Wall Street Journal and the coupon insert company
News America Marketing and the book publisher HarperCollins.
The company had warned for several quarters that its
Australian newspapers were facing punishing declines in
Gabelli & Co analyst Brett Harriss forecast before the news
of the goodwill charge that the newspapers in Australia have an
estimated value of $1.8 billion, while Dow Jones's value is
estimated at $1.5 billion.
Last quarter, News Corp reported a 35 percent drop in
operating income for its publishing division because of lower
advertising sales at its Australian newspaper.
In 2008, News Corp took a $2.8 billion non-cash charge on
its purchase of Dow Jones.
POISON PILL DEFENSE
The board formally approved that current News Corp
stakeholders will receive one share in the new publishing
company - that will retain the News Corp name - for every four
shares of the existing company they hold.
They will remain shareholders in the entertainment assets
under the 21st Century Fox name, including the Fox broadcasting
network, movie studio and lucrative equity stakes in pay-TV
To prevent hostile takeovers, News Corp put in place a
poison pill provision for one year after the split. It will be
triggered if someone acquires more than 15 percent of the stock
of either company.
News Corp has a history of potential takeovers. In 2004,
Liberty Media Corp's John Malone had quietly snapped up
a 20 percent voting stake in the company. The move prompted
Murdoch to swap his stake in DirecTV and other assets
for Malone's shares in News Corp.
The new News Corp will be an independent publicly traded
company and 21st Century Fox will retain no ownership interest
in News Corp, the company said.
Chairman Rupert Murdoch and Chief Executive Officer Robert
Thomson will give more details about the company at an investor
day conference on May 28.
The company named current directors Lachlan Murdoch and
James Murdoch to the board of the new News Corp. New additions
to the board include Thomson; Ana Paula Pessoa, a partner at
Brunswick Group; John Elkann, head of Exor SpA ; and
Masroor Siddiqui, head of investment firm Naya Management.
At 21st Century Fox, new board directors include Delphine
Arnault, deputy general manager at Christian Dior Couture;
Jacques Nasser of One Equity Partners; and Robert Silberman,
executive chairman of Strayer Education Inc.
Rupert Murdoch will be chief executive of 21st Century Fox
and chairman of both companies.