The Murdoch discount
By Jeffrey Goldfarb and Richard Beales
The authors are Reuters Breakingviews columnists. The opinions expressed are their own.
Rupert Murdoch’s political influence may be surpassed by his impact on the value of News Corp. The stock routinely trades more cheaply than media rivals largely because the company is
run at Murdoch’s whim. A Breakingviews calculator shows how big the Murdoch discount has become as a result of the scandal at the News of the World tabloid.
The phone-hacking affair not only forced News Corp to shutter its most widely read newspaper but also has finally forced the company to withdraw a $14 billion plan to buy the rest of the British pay-TV operator BSkyB. The damage could extend to the company’s American and Australian businesses. U.S. Senator Jay Rockefeller, for instance, has called on Congress to open an investigation that would accompany those under way in Britain.
The News Corp enterprise now trades at a paltry five times estimates of its EBITDA for the fiscal year 2012, according to analysts at Credit Suisse. That’s 40 percent less than media groups like Walt Disney and Time Warner — double the typical gap seen since 2002. Worse, the gap between News Corp’s market value and the sum of its sprawling parts is widening, according to a Breakingviews analysis using divisional profit forecasts by Barclays Capital and comparable valuation data from Thomson Reuters.
The biggest and most valuable component of the empire is its American cable networks, including Fox News. Put them on a multiple of nine and they’re worth more than $30 billion. The movie studio behind global blockbuster “Avatar” and the U.S. Fox broadcast network, home to hit shows like “American Idol” and “Glee,” are lumpier businesses but together should be worth over $12 billion.
The publishing arm at the heart of News Corp’s troubles warrants a lower multiple of four, between those of Britain’s Trinity Mirror and the New York Times, or just over $5 billion. The Sky Italia satellite unit and various private stakes add north of $6 billion, and stakes in publicly traded companies bring another $10 billion-plus, three-quarters of which is accounted for by News Corp’s 39 percent stake in BSkyB.
Ignore the unprofitable digital unit, tot it all up and strip out net debt of around $4 billion, and News Corp ought to be worth about $60 billion. The market values the shares almost 30 percent lower than that. For shareholders, that’s the downside of Murdoch’s clout writ large.