Key differences between the two units
It is no secret that News Corp’s publishing spin-off will contain the combined company’s least desirable parts. In contrast, 21st Century Fox will feature a major broadcast news division, lucrative television and news studios, and a sports broadcasting arm that has inked lucrative contracts with the MLB and the NFL. Its Fox News division continues to beat out its cable-based competitors in the United States, and its sports contracts will not expire for some time. Combined with a rapidly expanding digital footprint, these assets should provide 21st Century Fox with impressive annual returns in the first few years of its existence.
Also, it is important to remember that News Corp (NASDAQ:NWS)’s publishing division continues to suffer from the lingering effects of the infamous U.K. phone-hacking scandal that destroyed the credibility of News Corp’s News of the World publication, and ultimately resulted in the division’s closure. Although it was not cited as a principal motivation for the spin-off, it seems clear that the scandal provided some impetus for News Corp to divorce itself from an already-anemic portion of its business.
How can investors profit?
According to a News Corp release, the Murdoch family will own about 40% of the “new” News Corp’s shares. The company will have two share classes that will be differentiated by their voting rights. Given the size and expected liquidity of the new company, it is unlikely that investors will be able to profit from share-class discrepancies in the “new” News Corp.
However, the company does have some interesting assets. Specifically, its realestate.com.au business could represent an indirect play on the strength of the Australian real estate market. Meanwhile, its 50% stake in Foxtel’s pay-per-view concern could allow investors to diversify away from print. In the event that these divisions outperform expectations, the new company’s stock could experience a temporary uptick that might enable investors to earn quick profits.
In sum, the News Corp (NASDAQ:NWS) spin-off appears to be proceeding without much trouble. Although it is clear that the deal favors investors in the new 21st Century Fox broadcast and multimedia business, there may be opportunity for investors with exposure to the existing News Corp print business. However, the volatile nature of the entertainment and news industry demands that all investors perform their own due diligence before making an investment decision.
The article How to Play the News Corp Spin-Off originally appeared on Fool.com and is written by Mike Thiessen.
Mike Thiessen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Mike is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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