How would investors be impacted if News Corporation split its company into two units? Don Yacktman, Yacktman Asset Management; Ryan Mendy, The Spinoff Report; and CNBC’s David Faber, share their opinions. Yacktman is bullish on NewsCorp as he mentioned in a recent CNBC interview.
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now, let’s get back to our top story of the day. shares are spiking on reports it could split into two companies. one would be the publishing and newspaper arm. the other, television andentertainment. we have the story from all angles. let’s begin with david. thanks. this plan has been worked on, sources tell me, for months, and could be announced as soon as this thursday. that had been the original plan prior to these leaks today. you never know, things could change and there is one man who could make that decision, rupert murdoch whose family controls roughly 40% of the votes and the news corporation. currently, it is one corporation and under this plan, it would investors are applauding today and make it more likely it does happen perhaps with that originally planned announcement for this thursday. why do investors like it?simply put, you remove what has been an anchor to the overallstock price and growth profile of this company by pushing outpublishing and those assets associated with it, you end up with a much higher growth and potentially higher multiple company.here’s to give you some sense putting these numbers togetherin terms each what we’re talking about. newspapers, it would be a much smaller company but you get a sense of the ebit we’re talking about and what it looks like in terms of the growth rate forecast for the many coming years. contrast that with the so-called good company being led by the cable networks, film,television, satellite tv. you see overall the growth rates there.they are enormous, in fact, they get to the point according tomike nathan, you’re talking about a 14% compounded annualgrowth rate for operating income of this company and would have the highest growth profile of any in the media universe and would accord it many believe a much higher multiple already playing out to a certain extent today in the market and why we see those shares up some almost 8% during the course of today. we don’t know a lot of other details. will debt go with the publishing arm? will that allow the entertainment unit to buy back even more stock. it does seem re rtive of chasecarey, the man the ceo of this company being much moreresponsive to what shareholders have been asking for for years. interesting, you labeled it the good company, growth,profitability of fox news, fox broadcasting network, movietheaters, movie studio, then look at the publishing arm.murdoch has a love for newspapers. but how much or how littlegrowth might be associated with the publishing arm? would it be almost no growth assets? there would not be any growth at all. there’s a concern, while they’ve handled the internet quite well at dow jones and the wall street journal, australia internet access, things of that nature perhaps a bit behind the states, and concern of deterioration in properties in australia in particular. nobody is looking at this as a growth company. it is a cash producing asset that might have a decent dividend associated, perhaps take on leverage, more debt on its balance sheet, a bit more and be a not growing company but one that attracts some sort of shareholder base. stick around. would it be a good thing for investors or should you buy into the company now if you don’t invest in it already? let’s bring in don, president and co-cio of asset management owning more than a billion of making him a last count the fourth largest institutional investor. don, are you selling or buying more on this report? we don’t talk about what we’re doing in the short term. we only publish it quarterly. you’ll be able to see what we’ve done in a few weeks. you’re happy today no doubt. yes. what it does, a couple things it points out. there is a lot of value in thiscompany. that’s a refleck shun in the way the market has responded to this. number two, i think it shows chase carey continues to make a very positive dent in the company. and number three, i think the way in which they’re doing it, that’s what’s concerned meas they talked about this kind of thing, it’sng sold, spun off, so the shareholders will actually not have to pay taxes on the split up of two pieces of property. too many times i see management sell something not pretty and they end up paying taxes and so the shareholders don’t benefit very much from it. this is probably an ice cube, the publishing assets. the one wild card in here that i see, that i’d like to see the details on, is the dow jones part and the wall street journal part. i see a lot of spillover potentially with that being tied into fox business news. so i’d like to see the details. right. it is the one pubing piece that i’ve seen that successfully converted to an electronic format, gotten over a million subscribers and really been successful at it. interesting, bryan is an alum of that network. i will ask you — what i’m hearing, donald, it would gowith the spin-off of publishing, that being the dow jones assets.i wonder, in terms of your approach to the company, as youpointed out, you need an irs opinion to make sure tax-free. it will take at least six months, could be as much as 12 months.what do you do in the interim? do you still think there is value, given how much the stock is up today? i’d be objective. what we look at is the forward rate of return over a long period of time and we adjust for risk. this stock is still selling at a price less than it did five years ago. don, if you looked at say the second company, called the publishing arm, to david’s point, he mentioned the possibility of a dividend. if you’re not growing, you have to offer shareholders something. if it splits up the way thereport suggest, you will be given both pieces of stock, what kind of dividend would it take for you to want to invest in this slower growth company, the publishing arm? i would phrase it a littledifferently. to me, dividends are a be on the cash flow and that cash flow can be returned to shareholders either in the form of a dividend, dependenting in the form of tax rates or sharerepurchased depending on the price of the stub you’rereceiving. it depends on a lot of factors which way i would recommend going. donald, we don’t know who themanagement will be. in fact, speaking to some sources sort of familiar with it, they say it hasn’t been fully decided at this point.i’m curious, chase carey does seem to be ascendent in somecases in decision making ruling the day. would you expect to see him ruling the entertainment assets? how much does the management whatever it may be, of this split company matter, in terms of approach to this company overall? to answer your first question, i would imagine chase carey would stay in the other side. he’s historically been involved in cable and satellite.i’m fairly certain that will be the case. yeah. the other side, i think, is a function of — they clearly have a bench and so they can provide opportunities for people. i’m sure there are peoplecapable of running it. again, they’re going to have to do someteresting things. the post is losing money and when you look at what’s happened to classified ads over the last 5-7 years and how much the decline has been, clearly the print business is a fading business. don, thank you very much. we will look forward to that quarterlynewsletter. thank you very much. that was specific to news corp. let’s dig a little more intothis and also whether or not spin-offs generally work at all,either for the company doing the spinning or the newly spuncompany. ryan is ceo, head of marketing at spin-off report.you’ve been very patient and we appreciate it. an analysis what generally happens with companies. firstoff, would you favor, based on historical precedent, would you favor from an investor’s privilege, a spin-off of ? one word, absolutely. you’ve got to do this. you have these big conglomerate companies now. it’s not transparent what they’re doing and what the mostinteresting thing for investors is clarity. we’re coming for a reason of restructuring. restructuring, the traditional roots of restructuring just isn’t working anymore. investors don’t want to invest in management with unproven strategies or disposal sale of a business. they don’t want them to go for an ipo. what they want them to do is break up entities that don’t look like they fit together. this is perfect. you have 25% of the revenue iscoming from the publishing business, and the rest coming from the entertainment business. the entertainment business isdoing significantly higher double-digit margin, the publishing business is seeing 7%. it works. if you look historically, postspin-off one year from listing to one year after, we did a study, the world’s first study recently on the last decade of spin-off, not ipo stuff but pure spin-off to shareholders. we saw 23% increase on the spin-off entity and 17% increase one year after on the parent business. so historically, then, you’d want to buy the company that is being — it’s sometimes hard to define, right, if it’s a clean break, it’s 50-50. absolutely. if it’s clear there’s aparent [email protected] and the parent remains. you’re saying it’s better generally to buy the part spun off historically? historically, yes. this is a somewhat of a parts game and timing game as well. if you take a look at the stats, we’ve covered over 300 spin-offs in five years. the reason why we sell this business, there’s no understanding what maintenance with corporate breakups.– what happens with corporate announcements. what they don’t do is provide any information. if you look at this, they need to — everyon investing now because they like the idea, they like the spirit of the company. rupert murdoch himself said just in may, he was opposed to the idea. interesting but now he’sinterested in doing it. it does pave the way for them to get around the uk regulators and be able to divide thesecompanies up. there is a great reason for looking at this. big insider selling, big institutional selling. no one has been talking about that. if you lookt the shares donald owns, as per my reports, they’re not the shares — they don’t have any voting rights. yeah. that’s always been a knock on the company as well. ryan, of the spin-off report, great work. i have a feeling we will call onyou ain. appreciate it. buy the entertainmentbusiness. there you go. i liked him. he said it very clearly. any idea of a timeline? . what are the chances this doesn’t happen? with the action you have to imagine. it will move up definitely. to the sense this floated out, a trial balloon, to see the market test. certainly, they’ve got an answer without a doubt. it looks very likely, and could be as soon as thursday in terms of announcement. you will not see the actual split take place for quite some time. could be at least six months in the earliest and perhaps as nine