(NEW YORK) -- Rupert Murdoch, chairman of News Corporation, the $60 billion media conglomerate, announced Thursday morning that the company would divide its publishing and entertainment divisions into two separate businesses. Whether the former will be able to survive without the latter is up for debate.
"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 recognize their full potential -- and unlock even greater long-term shareholder value," Murdoch, who will remain chairman of both companies, as well as chief executive of the entertainment company, said in a statement.
Investors had been gunning for this for a long time.
"With the whole phone hacking scandal from last year it became clear that it would make the most sense to split the business off," said Michael Corty, an equity analyst with Morningstar, Inc., in Chicago. "Splitting is a good thing for shareholders."
It also made fiscal sense: News Corp's. publishing arm -- which includes books and newspapers including The Wall Street Journal, The Times of London and The New York Post -- only generates about 10 percent of the operating profits.
The other 90 percent comes from the entertainment holdings, which counts Fox Broadcasting, Twentieth Century Fox Film, and STAR TV on its roster. Though Corty believes the publishing arm will survive, "We think less of the publishing assets given the headwinds facing the newspaper operation in the U.S., the U.K., and Australia."
Consequently, "It's not splitting off into equals, like CBS and Viacom did," said Corty. "It's a little more similar to Time Warner and AOL splitting up. AOL was the unloved business and didn't fit into the rest of Time Warner."
Since 1990, businesses have been spinning off at a rate of about 50 per year.
The reasons vary. Some, like AOL and Time Warner, are fairly disparate entities and had little in common in the first place. Splitting them lets management focus exclusively on the new company.
Another reason companies spin off is because dividing up a company gives investors greater transparency and greater opportunity, said Jody Lurie, corporate credit analyst with Janney Capital Markets in Philadelphia.
"Some companies create better value separately than they do when they're together. Or the stronger side of the business is getting pulled down by the weaker," Lurie said.
The hope is that the new company will drive up the stock price.
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