NEW YORK -- Wall Street likes the latest news from media baron Rupert Murdoch.
His News Corporation Ltd.'s American depository receipts -- which had lagged well behind their peer group -- jumped three points immediately after the company announced it will sell 20% of Fox Group entertainment division in an initial public offering.
"This move means that they are unlocking the value of the Fox entity, which had been hidden and mucked up in News Corp.," said Larry Haverty, senior vice president at State Street Research & Management, Boston, which owns between 9 million and 10 million ADRs of the company.
Several analysts and portfolio managers concurred that News Corp. has been a difficult company for Wall Street to understand and follow because of its numerous holdings and joint ventures around the globe.
"But Fox is all based in the United States and much easier to analyze," observed media analyst John Reidy, managing director at Salomon Smith Barney Holdings Inc., New York.
The Fox assets are the crown jewels of the company and its fastest growing business, added Joseph Francfort, an analyst who follows media businesses at Lynch & Mayer Inc., New York. His firm, which owns 4 million News Corp. ADRs, started buying them in the first quarter and continued in May when the ADR price slumped to a low of 23, he said. The ADRS closed at 32 1/4 July 9.
The Lynch & Mayer purchases were prompted by News Corp.'s surprise announcement in November that it planned a $1 billion share buyback. That signaled a sea change in the attitude of a company that, historically, had not been shareholder friendly, explained Mr. Francfort.
"Just when it looked like their earnings were about to grow, they would go out and do another deal that was dilutive," he said.
Many large institutional shareholders have not been investing in News Corp., preferring instead to own rivals Viacom Inc. and Walt Disney Co., Mr. Francfort said. He expects that to change now that News Corp. is making a concerted effort to woo shareholders and pump up its stock price.
Smaller owners also grew discontent with News Corp.'s underperformance. Typical is Collins & Co., a San Francisco money manager and investment banker, which switched out of News Corp. into Viacom and Disney a couple of years ago.
"There was always the issue of locked-up value that was not reflected in the stock," said Brian Eisenbarth, a media analyst with Collins. "We got frustrated with what they were doing, always acquiring new assets. When you spread out and acquire, it's hard to get a decent return on your stock. You need efficient use of capital to boost stock price."
He declined to specify the size of the firm's stake in News Corp., except to say it was small.
The reorganization of News Corp.'s properties will be beneficial to shareholders, believes Mr. Francfort. "It allows a cleaner examination of the company," he said.
Investors who are interested in broadcasting and entertainment will be able to buy Fox. Those interested in newspapers and Asia will be able to buy News Corp., he noted.
Analysts and money managers aren't yet certain if it would make sense to own both stocks, once Fox is spun off. News Corp. will continue to own 80% of Fox.
"The spinoff will attract additional investors to News Corp., but it won't be a substitute for it," said Salomon Smith Barney's Mr. Reidy.
ASIA CONCERNS
Many money managers also had been concerned about the company's exposure to Asia, because of its newspaper properties in Australia and satellite-TV channels in Asia and Japan.
Australian shareholders, who had always been supporters of the stock, became disenchanted as the Asian crisis took hold. In May, some analysts there recommended selling the stock, which sent it reeling.
Now it appears to be on the road to recovery, helped by the upcoming Fox spinoff and a previously announced plan to sell TV Guide to United Video Satellite Group for $2 billion.
Analysts estimated the ADRs could rise 20% to $40 in the next year. From Jan. 1, 1994, through July 7, 1998, they gained only 23%, while shares of rivals have soared in the period: Disney jumped 150%; Time Warner Inc., 93%; Viacom, 25%.
News Corp. ADRs got a jump-start after the stock buyback was announced in November, rising 69% from Nov. 1, 1997, through July 7. Viacom also surged, up 102% in the period, because it announced restructuring plans. In contrast, Disney gained 28% in the period and Time Warner, 49%.
News Corp. said in its announcement that the Fox Group will consist of its movie business, including Twentieth Century Fox; its television group, which includes Fox Broadcasting Co., 22 owned and operated television stations and cable networks, including principal interests in five pay cable networks; and Fox News Channel, a 24-hour all news network, wholly owned by News Corp. The new company's assets also will include the Los Angeles Dodgers and News Corp.'s options to acquire interests in other U.S. sports teams.
The company expects to file for its IPO with the Securities and Exchange Commission in the next three months and to complete it by year's end. Analysts estimate it will fetch between $3 billion and $4 billion, which News Corp. likely will use to reduce its $8 million in debt, as well as to buy back shares and possibly make new acquisitions.
STRONG BRAND NAME
"News Corp. will finally get credit in the market, which it hasn't before, because it tends to be viewed as an Australian publishing company rather than an American entertainment business," said Ann Miletti, an analyst at Strong Capital Management, Menomonee Falls, Wis., which owns 920,000 shares. Fox is a strong brand name, which even consumers recognize, although Wall Street hasn't, she added.
Ms. Miletti doesn't expect the ADRs to post any more gains until the road show for the IPO starts.
Money managers who own News Corp. ADRs had only praise for the Fox Group.
"They've got the best TV business in the country," said State Street's Mr. Haverty. "They own and operate more TV stations than any of their competitors, and through them reach 40% of U.S. homes."
Steven Biggs, an analyst at Wells Capital Management, San Francisco, which owned 132,800 shares as of March 31, said he's hoping News Corp. will do more IPOs and sell off other assets such as its money-losing satellite business in China.
He noted Fox's TV business offers tremendous growth potential because the bulk of its viewers are in the "desirable 18 to 39 age bracket that national advertisers prefer. We're very excited about the potential there. We expect the year 2000 to be a big year for TV advertising, in the way 1976 was, which will mean strong revenues for Fox."
