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News Corp. publishing arm breakup plan wins approval

Bloomberg

After years of being criticized by investors for his love of newspapers, News Corp. Chairman Rupert Murdoch is now a step closer to cleaving off his declining publishing business.

Shareholders voted to approve the breakup plan at a special meeting in New York, where the company is based, Murdoch said Tuesday. The publishing group will inherit the News Corp. name, while the entertainment unit will be called 21st Century Fox after the June 28 split. Murdoch holds the plurality of votes through his family’s trust, with 39 percent of Class B voting shares, helping ensure passage of the proposal.

“News Corp.’s size and complexity made it difficult for investors to understand and properly value our company,” Murdoch said at the meeting. “We’re confident the separation will unlock the true value of our assets.”

Murdoch’s sustained commitment to newspapers, a deteriorating industry, led investors to push for a split so that the market would recognize the value of entertainment assets such as the Fox News and FX cable networks. 21st Century Fox also includes Fox broadcasting and film division 20th Century Fox, which will keep its name despite the parent company’s updated moniker.

“We think generally the split can be good for investors, but we’ll have to see how both stocks are priced,” Donald Yacktman, the founder of Yacktman Asset Management Co. said. Yacktman is the fourth-largest holder of News Corp.’s Class A shares, with 5 percent.

The new version of News Corp. will be focused on newspapers, including The Wall Street Journal and the New York Post in the U.S.; the Times and Sun newspapers in the U.K.; and various newspapers in Australia. The company will also include Australian television business Fox Sports Australia and a 50 percent stake in pay-TV operator Foxtel. HarperCollins book publishers and Amplify, a digital-education business led by former New York City schools chancellor Joel Klein, round out the portfolio of the new News Corp.

Last month, the company said it will write down the value of its publishing business by as much as $1.4 billion, blaming slowing cash flow from its Australian and U.S. newspapers.

Robert Thomson, the chief executive officer of the forthcoming publishing group, said at an investor meeting last month that the company expects “to be relentless in our cost cutting and in our pursuit of profits.”

News Corp. cut as much as 10 percent of staff at the New York Post, according to a recent report from Capital New York. The Post loses as much as $110 million annually, Brett Harriss, an analyst with Gabelli & Co., told Bloomberg News last year.

The company has written down its publishing assets before, as an industrywide advertising slump takes a toll on the once-lucrative newspaper business. Its chain of Australian newspapers, the genesis of Murdoch’s media empire, has been hit especially hard. News Corp. restructured the business last year and cut jobs in a bid to improve profitability.

The company’s total publishing business reported a net loss of $1.89 billion in the last fiscal year, which ended June 30. The loss reflected $2.6 billion in writedowns, mostly reductions in the value of newspapers. News Corp. also wrote down the value of its Dow Jones & Co. division by $2.8 billion in 2009. Murdoch bought Dow Jones from the Bancroft family for $5.2 billion in December 2007, acquiring The Wall Street Journal and Dow Jones Newswires as part of the purchase.

Even so, the new News Corp. will start with $2.6 billion in cash and approval to buy back $500 million worth of stock after the split.

Murdoch will be chairman and CEO of 21st Century Fox and chairman of the new News Corp. His children, James and Lachlan, will be on both boards.

During the meeting Tuesday, News Corp. also told shareholders it hasn’t entered into any settlement talks with the U.S. Justice Department related to the agency’s probe over possible violations of the Foreign Corrupt Practices Act. Executives at the company’s U.K. newspapers have been charged with bribing public officials related to a phone-hacking scandal in Britain.

“We have an ongoing cooperative relationship with the Department of Justice, and that is where it stands,” said Gerson Zweifach, News Corp.’s general counsel.