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Media giant News Corp. considering breakup

By Dawn C. Chmielewski and Meg James, Los Angeles Times –

LOS ANGELES — News Corp. is contemplating what once was unthinkable — splitting its entertainment and publishing operations into separate companies. The company Tuesday confirmed that it was considering a breakup of the $52 billion global media conglomerate.

The lucrative film and television operations — including the 20th Century Fox film studio, the top-rated Fox broadcast network and the profitable Fox News Channel — would form one company. News Corp.’s newspapers, HarperCollins book publishing assets and education businesses would comprise a second publicly traded company.

Wall Street has agitated for years for News Corp. to shed its slow-growth newspaper holdings, which include the Wall Street Journal, the New York Post, the Times of London, Britain’s Sun tabloid and papers in Australia. But Chief Executive Rupert Murdoch, who built his powerful media empire from a single newspaper in Australia, long had resisted the idea.

Investors welcomed the news of a possible spinoff, driving News Corp. shares up 8.3 percent in trading Tuesday to $21.96.

No final decision has been reached, according to a person familiar with the discussions. The Wall Street Journal first reported the possible restructuring, a concept that has been debated internally. The Journal said Murdoch recently warmed to the idea.

“That is a very significant move of historic type,” said Claire Enders, a British media analyst who has followed News Corp. for at least two decades.

The shift comes after nearly a year of turmoil following revelations that reporters for Murdoch’s News of the World tabloid in London had hacked into voicemail messages left for a missing 13-year-old girl, who was later found slain. Allegations of widespread illegal phone hacking led News Corp. to close down the News of the World tabloid and abandon a $12 billion bid to acquire all outstanding shares that it doesn’t already own in profitable satellite TV provider British Sky Broadcasting. Numerous former company executives have been arrested in connection with an investigation by Scotland Yard, including Rebekah Brooks, the former head of the company’s News International unit.

The damage has reached the Murdoch family. The 81-year-old media baron was criticized in a report from a parliamentary committee as being unfit to run an international company. Murdoch’s youngest son, James, resigned as chairman of BSkyB this spring, ahead of the damning parliamentary report.

The scandal also has taken a financial toll on the company, which has incurred some $167 million in legal fees and civil settlements paid to victims of the phone hacking.

The controversy threatens News Corp.’s continued control of BSkyB, which is Britain’s largest pay-TV operator. British regulators are reviewing whether News Corp. is a “fit and proper” owner of the broadcaster.

Some analysts believe that control of BSkyB might be a motivation for the News Corp. breakup.

The new structure eventually could clear the way for News Corp. to renew its efforts to acquire BSkyB outright, Barclays media analyst Anthony DiClemente wrote in a report.

“Ironically, we believe last year’s failed bid to acquire its remaining BSkyB stake has proved to be an unexpected defining moment,” wrote another prominent media analyst, Michael Nathanson of Nomura Securities.

The investigation into News Corp.’s ownership of BSkyB isn’t likely to be resolved any time soon, Enders said, adding that for the company, “the situation is far from over, professionally and reputationally.”

Since withdrawing its BSkyB takeover bid, News Corp. has authorized $10 billion in share repurchases and focused on strengthening its core television businesses. This month it made a roughly $2 billion offer to acquire an Australian holding company that co-owns important TV assets in that country. It also announced plans to acquire Walt Disney Co.’s stake in an Asian sports joint venture, ESPN Star Sports.

“News Corp. has taken clear steps toward a more shareholder-friendly strategy that, to older investors in the company, was once thought of as a pipe dream,” Nathanson wrote.

At News Corp., Chief Financial Officer David F. DeVoe has been advocating the breakup plan for years, but Murdoch opposed such a move, according to a person with direct knowledge of the matter who requested anonymity because of the confidentiality of the discussions.

Formation of a new publishing company could provide an opening for Murdoch’s eldest son, Lachlan Murdoch, who was forced out of News Corp. in a 2005 power struggle, to return to the newspapers.

The move might also give the company’s founder the ability to more easily snap up ailing newspaper properties. Murdoch once considered buying the Los Angeles Times, whose corporate parent, Tribune Co., has been mired in bankruptcy proceedings for more than three years. Murdoch gave up on the notion after negative investor reaction to his 2007 purchase of the Wall Street Journal. Tribune Co. is a partner in McClatchy-Tribune News Service.

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