Corsair Capital Q3 Letter via Market Folly
We believe NWSA represents a classic undervalued spinoff investment, created by a large cap company spinning off its smaller, less exciting businesses. The spinoff of News Corp (NASDAQ:NWSA) caused – what we often refer to as – a “prisoner exchange” of shareholders. Old News Corp shareholders interested in a pure play growth investment held onto their Twenty-First Century Fox Inc (NASDAQ:FOXA) (21st Century Fox) stock, but dumped the News Corp spinoff, presenting an opportunity for a new base of investors to take advantage of the selling pressure in News Corp.
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The misperception of News Corp (NASDAQ:NWSA) as a shrinking newsprint business enabled new investors to purchase several growing video/digital assets (which contribute approximately 50% of the company’s EBITDA) at a cheap valuation. With solid cash generative businesses, a net-cash rich balance sheet of almost $4.00 per share and a management team focused on creating shareholder value, News Corp shares offer limited downside and upside of a $25.00 stock price in the next 12 months. Potential catalysts include accretive acquisitions, share buybacks, a growing dividend policy, more bullish sell-side coverage and a re-rating of the stock.
News Corp business summary
“The companies that make up the new News Corp. are some of the most extraordinary and brilliant brands in the world… they’re undervalued and I believe underdeveloped, but all that changes starting today.” – Chairman Rupert Murdoch
News Corp (NASDAQ:NWSA) is a collection of global media assets with renowned brands in publishing, information services, cable sports, cable service and digital real estate classifieds.
News Corp valuation
“My goal for the new News Corp. is to compress the success time line of the original News Corp. from 60 years to 10 years.” – Chairman Rupert Murdoch
We have valued the company on a Sum-of-the-Parts basis. At $16.00 per share, NWSA is trading for only 4.7x 2014 adjusted EBITDA, being valued in the market as a low quality publishing business, despite the nonpublishing assets contributing almost half of 2014 EBITDA. By comparison, New York Times (“NYT”) trades for 6.5x 2014 EBITDA and we believe this is a good comparable for NWSA’s U.S. publishing unit. Therefore, we value the News and Information segment at 4x-6x 2014 EBITDA, which takes into account the lower quality Australian and U.K. publishing assets.
H/T Market Folly
Corsair Capital’s Thesis on News Corp