Updated at 10:15 a.m. ET: Rupert Murdoch’s News Corp. said Tuesday it is considering dividing itself into two companies, severing its publishing division from its much larger and more lucrative entertainment arm.
"News Corporation confirmed today that it is considering a restructuring to separate its business into two distinct publicly traded companies," the company said in a brief statement that gave no further details.
The plan, which would effectively bring an end to CEO Murdoch’s decades-long drive to pull together the disparate strands of his media empire into one coherent company, would essentially mean cordoning off the newspaper business that once was the core of Murdoch’s company, which he has grown from a single Australian newspaper he inherited in the 1950s.
The aim is likely the protection of the Fox movie studio and television networks that now are the most profitable parts of the media empire. Murdoch is likely to want to insulate this part of the business from the fallout from the phone hacking scandal that has led to the closure of the News of the World tabloid in the U.K., halted Murdoch’s BSkyB takeover bid and prompted the arrest of several key figures.
Such a plan would likely be intended to shore up shareholder value, according to a New York Times report, which notes that shareholders have said they would prefer the company to focus on its productive entertainment assets, which generated $23.5 billion in revenue in the year ended June 2011, as opposed to $8.8 billion in revenue for the publishing business.
Barton Crockett, an analyst with Lazard Capital Management, told CNBC that the phone hacking scandal was an opportunity for the company to rethink its operations and improve the situation for shareholders. A division of the business will lead to a stronger company, he said.
“We’ve gone from lemons to lemonade,” Crockett said. “I think it’s something that will make News Corp. a stronger business and a better stock.”
Shares of News Corp have risen 12 percent since the beginning of the year, supported in part by a stock buyback program.
A division of the News Corp. units may take the form of a corporate spinoff, according to the Times. It would create a publishing business that comprises The Wall Street Journal, The Times of London, The New York Post and the HarperCollins book business, the report said, adding that the Murdoch family would probably retain control of the newly split companies.
Media conglomerate Viacom took a similar path in 2005 when it split into two companies, leaving the television company CBS as a standalone company.
Reports also say it is unclear whether Murdoch will go ahead with plans for a corporate spinoff, given his opposition to it in the past. However, News Corp.’s Chief Operating Officer has made it clear that the company’s management team has considered a split, although earlier this year he said no decision has yet been made.
News of the planned spinoff was first reported by The Wall Street Journal.