News Corp break-up would unlock $7bn in value, says activist Starboard

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

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 $7bn 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 $12.6bn. 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.

Investors have long complained that News Corp is worth less on the stock market 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 the Australian property listings group REA. 

Murdoch and his family trust controls 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 to 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 $3bn 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 macroeconomic challenges, such as inflation and rising interest rates, that have hit its businesses. For the year to June 30, News Corp’s revenue fell 5 per cent to $9.9bn. Net income for the year dropped to $187mn, 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 announced a deal for it to be acquired by Cisco for $28bn.