The only surprise is that Murdoch didn’t do it before…
Raymond Snoddy says News Corp shares were up 8% on the mere prospect of a demerger and there could be a further modest rise when the deal is actually completed. If you can add say 10% to the value of a multi-billion corporation by what is little more than a paper transaction why on earth would you not do it?
The move by Rupert Murdoch to hive off his publishing interests into a new company should come as no surprise. The only surprise is that it hasn’t been done before.
Indeed a lot of unnecessary aggravation could have been avoided if the perfectly natural manoeuvre had been completed a year ago.
While News Corp was always portrayed as the integrated media company par excellence, in fact television and pay television in particular is marching to a very different drum in terms of revenues profit and perceived value to publishing.
At the same time the centre of gravity of the company has long ago shifted to the US and American investors who have very little interest – if any at all – in the newspaper assets of News International.
Wise decision
The proof that this is indeed a smart move in terms of stock market valuation came within hours of what was presumably an inspired leak to the Wall Street Journal.
The shares were up 8% on the mere prospect of a demerger and there could be a further modest rise when the deal is actually completed. If you can add say 10% to the value of a multi-billion corporation by what is little more than a paper transaction why on earth would you not do it?
The implications of the deal are rather more difficult to fathom. Loss-making papers like The Times and The Sunday Times will inevitably face a greater threat to their survival when the comfortable umbrella of television is withdrawn.
Anything can happen in the corporate world and Rupert Murdoch, despite a lifetime spent in love with newspapers, can change his mind like anyone else.
Yet when he says he has no intention of selling his newspapers, Murdoch’s comment is entitled to be taken at face value.
In fact it is more probable that the split could have the effect of saving the papers for the longer term because they will no longer be seen as a drag on the News Corp share price for those who really only want to hold television assets.
This will remain true as long as Murdoch retains voting control of News Corp Publishing, or whatever the new entity is to be called.
The shares of the new business, which will only account for about a quarter of News Corp’s current revenues, will have to be realistically priced and may not exactly be sparkling stock market performers.
A second BSkyB bid?
The second bit of the conspiracy theory goes that this move will enable Murdoch to return to the fray and have another serious crack at trying to own the 61% of BSkyB he doesn’t already own.
It is unlikely that Murdoch has given up all hope of owning all of the British satellite broadcaster and the jump in the market capitalisation of News Corp would certainly help with the funding of such a merger.
The political realities are that Murdoch will be unlikely to return to that particular battlefield anytime soon.
There will, however, be regulatory bonuses on both sides of the Atlantic.
Should Ofcom, with or without its chief executive Ed Richards, come to a bizarre decision that News Corp was not fit to hold a broadcasting licence because of events at the News of the World, the regulator would find it difficult to make its decision stick.
It would be the equivalent of a two-card trick if the 39% Sky stake was held by a separate legal entity which has no control over newspapers.
It would also help with strict US rules stipulating that American television stations have to be 75% owned by American investors and interests.
The nightmare scenario
The big caveat to all of this is the health and well-being of Rupert Murdoch. The insurance policy covering the longevity of world famous titles such as The Times and The Sunday Times run out virtually the minute Murdoch senior is no longer in charge.
When that happens the consequences are painfully obvious. New Corp Publishing is taken over or sold. The new owner could be a public benefactor who has made a lot of money elsewhere and wants to keep important titles going for the good of British society. We can all dream.
It is much more likely that a venture capital will buy the company for a song and do one of two things – strip out as much cost as possible, which will mean mass sackings of journalists or, more probably, break up the company and sell off the pieces.
Either way The Times and The Sunday Times could be in serious trouble. Imagine for a moment The Times and Sunday Times owned by a VC or a hedge fund. Would you have the current vigorous campaign against tax avoidance – a campaign that could lead to new legislation.
Print journalism’s biggest threat
Then there could be the final undignified horror – journalists who have not got the slightest feel for, or interest in, management trying to take over the paper.
At a Media Society debate this week on Life After Leveson MP Chris Bryant, who took News International for £30,000 compensation, predicted that newspapers would virtually all have had it within five years.
Bryant is wrong but you know what he means. Certainly the word challenged comes to mind. But if Bryant is even 20% right then it certainly serves to highlight the folly of his dear leader Ed Miliband arguing for the break-up of News International.
When you think about it for more than two seconds Miliband could hardly be more wrong. We should all be praying for the exact opposite – the survival of News International in a coherent and integrated a state as possible.
Sensible people who want to see a diverse press should even consider lighting a candle for the continued good health of Rupert Murdoch – despite everything.
Those who casually curse the Dirty Digger might end up with something very different from what they expect or want.