News Corp break-up would unlock $12b in value, says activist Starboard

Rupert Murdoch, right, last month stepped down from his role as co-chair of News Corp, relinquishing power to his son Lachlan. Photos / Evan Agostini, Invision, APDrew Angerer, Getty Images

Starboard Value has built a stake in News Corp and is pushing for billionaire owner Rupert Murdoch to break up the company, as legacy media groups face mounting pressure from shareholders to improve performance.

The activist hedge fund run by Jeff Smith announced the position at a conference on Tuesday, arguing that News Corp’s stock market valuation “does not make sense” and calling for a spin-off of its online property listings division.

“If News Corp separates the digital real estate assets through a tax-free spin[off]...shareholders will see significant appreciation in the company’s share price,” Smith said.

Starboard estimates that a spin-off of the real estate business would unlock more than US$7 billion (NZ$11.86b) in value for News Corp shareholders.

News Corp shares are up 20 per cent this year, outperforming the broader US market and giving the group a valuation of NZ$21.36b. Its shares have climbed 5 per cent since Friday when Reuters reported that Starboard was taking on the Murdochs. The hedge fund has not disclosed the size of its stake in News Corp.

A News Corp spokesman said it was engaged with investors and committed to driving shareholder value.

“We remain focused on executing our strategic plan, which has helped us set records in profitability over the past three years. We are proud of our rapid digital transformation and bright prospects for long-term growth and value creation,” he said.

Investors have long complained that the stock market values News Corp at less than the sum of its parts — which include newspapers on three continents, financial information group Dow Jones, book publisher HarperCollins and a majority stake in Australian property listings group REA.

Murdoch and his family trust control about 40 per cent of the voting shares in News Corp, a source of concern for some shareholders who complain of a “Murdoch discount” that keeps the valuation of companies controlled by the billionaire depressed compared with media peers. Starboard on Tuesday pointed to the valuation of the New York Times, which trades at a higher multiple of earnings than Dow Jones, owner of the Wall Street Journal.

Murdoch, 92, last month stepped down from his role as co-chair of News Corp, relinquishing power to his son Lachlan.

Starboard’s incursion comes after the Murdochs in 2021 tried to combine News Corp with Fox, a deal that would have reunited the two halves of their media empire.

But after a pushback from independent shareholders, the Murdochs in January called off the proposed merger. Rupert and Lachlan Murdoch said the combination was “not optimal” for shareholders, a recognition of the reservations of big investors who feared the merger would fail to realise the full value of the assets.

The following month, News Corp revealed that a planned sale of one of its real estate assets — an opportunity for shareholders to unlock NZ$5b of this value — had fallen apart.

News Corp chief executive Robert Thomson has announced plans to cut staff by about 5 per cent this year because of the hit from macroeconomic challenges, such as inflation and rising interest rates.

For the year to June, News Corp’s revenue fell 5 per cent to NZ$16.78b and net income dropped to NZ$317m, a 75 per cent decline from the previous year.

Starboard is best known for pushing changes at software groups such as Salesforce and GoDaddy. Its new stake in the media conglomerate comes hot on the heels of a big success with a bet on Splunk, which last month agreed a sale to Cisco for US$47.48b.

Written by: Patrick Temple-West and Anna Nicolaou in New York and Ortenca Aliaj in London

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