By William Launder
As News Corp. (NWS, NWSA) appears poised to unveil a historic
split, many questions linger ahead of an expected Thursday
announcement, such as how the media company may divide its
formidable balance sheet.
News Corp. owns Dow Jones & Co., publisher of this newswire
and The Wall Street Journal.
An announcement Thursday is expected to confirm the reported
framework of the split. Specifically, News Corp. would separate its
film and entertainment businesses from its generally less lucrative
newspapers, book publishing and education assets, a person familiar
with the matter said.
News Corp. also is likely to outline some new leadership roles
at the separated entities and a rough timeline for completing the
split, which is expected to take at least a year to complete, the
person said.
News Corp.'s Class A shares traded 2.4% higher Wednesday
afternoon at $22.23, after reaching multiyear highs Tuesday when
the split-up plans were first reported.
What's likely to be missing from Thursday's announcement are
specific details on how News Corp. will divide its roughly $15.2
billion in long-term debt and $10.7 billion in cash and cash
equivalents between the two entities--a matter of particular
interest to analysts questioning how the publishing unit will fair
as an independent entity.
"Clearly the No. 1 question is their plan to deal with excess
cash on the balance sheet," said Todd Juenger, analyst with
Bernstein Research. In addition to capitalizing both units, Mr.
Juenger suggested News Corp. grant shareholders a special dividend
to absorb some of the excess cash, which he considered a "dead
weight" on the company's balance sheet and stock price
appreciation.
BTIG analyst Richard Greenfield estimated that News Corp. would
infuse the publishing division with $1 billion in cash and another
$1.5 billion in debt, as he expects publishing revenues to slow
over the next several years.
Some of that cash also would go to paying ongoing legal and
investigation costs tied to News Corp.'s phone-hacking scandal,
which Mr. Greenfield expects will cost $227 million for the 2012
fiscal year and $100 million the year after.
"We believe $1 billion of cash would reduce fears related to
on-going litigation and the risk of even more rapid declines in
publishing profits," Mr. Greenfield wrote.
In comparison, News Corp. spent $167 million related to the
phone-hacking investigations for the nine months ended March 31, a
period when its publishing unit generated an operating profit of
$458 million. News Corp. has to date booked such charges separate
from its publishing division's financial results.
Also Thursday, News Corp. is expected to offer some details on
how it will complete its ongoing $10 billion share repurchase
program, which to date is about half-completed, the person said.
Other details--including how the company will divide its properties
and non-executive management team, like its legal and finance
ranks--will likely be clarified later during the separation
process.
"Most of the big news is out," Evercore analyst Alan Gould said.
"But there are little things to ask like how much will they invest
in education, do they want to put cash into the publishing entity
to make acquisitions, and will there be a partnership to share
content between the Fox News channel and Dow Jones?"
Don Yacktman, whose investment fund is one of News Corp.'s
largest institutional shareholders, called a potential partnership
between Dow Jones and Fox Business News to be the "one wild card"
on the table in terms of a split.
"I see a lot of spillover potentially with that being tied in
with Fox Business News," Mr. Yacktman said in an television
interview Tuesday.
Write to William Launder at william.launder@dowjones.com