Why News Corp stock may not be toxic

Steve Dinneen
Follow Steve
NEWS Corp’s shares have fluctuated wildly amid the bombshells that have rocked Rupert Murdoch’s empire. But news of the FBI investigation yesterday is likely to spark a downward trend for a while – shares have already fallen, closing down 2.26 per cent yesterday at $15.99.

As the political pressure continues to mount in the US, the possibility of Murdoch being ousted, however slight, continues to rise. And this presents a very interesting prospect for the canny investor.

News Corp has always traded at a considerable discount to its peers, partly due to the perception – largely accurate – that it is a firm run on the whims of a single man. It’s known as the Murdoch discount.

Since the latest tidal wave of revelations centering around News International, this discount has risen to around 30 per cent – making the group’s value far less than if someone decided to break it up and sell the constituent parts.

The lion’s share of News Corp’s operating profits come from its US cable networks business, which is worth at least $30bn. Its TV and movie studios business is worth another $12bn, which already takes you to its current market cap.

Throw in its 39 per cent holding in Sky, and other stakes including in privately held Sky Italia, and you have close to $20bn more, before even look at the value of the UK newspaper business that caused all the trouble in the first place (which is just about balanced out if you strip away News Corp’s $4bn debt).

Its operations in China have been stripped back significantly in the last 12 months but its Indian ventures have good growth prospects.

All in all, ousting Murdoch would be difficult and painful – but could realise a lot of value.