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Friday, January 27, 2023

Why the Murdochs changed their plans – The Hollywood Reporter

What alternative deals could Fox Corp. and News Corp. explore now that media mogul Rupert Murdoch has canceled his proposal to merge the two and reunite his media empire, which had splintered in 2013 to focus on different businesses and strategic priorities? ? Wall Street pundits have begun debating this issue after the companies disclosed the decision on January 24 following objections raised by several investors and at least one member of the Murdoch family.

“In withdrawing the proposal, Mr. Murdoch indicated that he and Lachlan K. Murdoch have determined that a combination is not optimal for the shareholders of News Corp. and Fox at this time,” the News board statement read. Corp. Fox, where Rupert Murdoch serves as chairman and his son Lachlan as chief executive and chief executive officer, made a similar comment.

Murdoch Sr. had launched merger discussions in October, asking the boards of both firms to consider a combination, prompting Fox and News Corp. to form special committees of their boards. Through his family trust, Murdoch has effective control over the companies, but a merger would require the approval of a majority of shareholders not affiliated with Murdoch. Major shareholders such as T. Rowe Price and Irenic Capital Management have expressed concerns about the proposed transaction and its possible valuation. And, say the sources the hollywood reporterso did James Murdoch in letters to the boards of both companies.

Cowen analyst Doug Creutz was among Fox watchers on Wall Street who praised the result, writing in a report that it “eliminates a glut on Fox stock” and adding: “This is the best result ever for shareholders of Fox (although it could always be revised in the future).” The Wall Street pundit, who has a “market performance” rating and a $36 price target for Fox shares, also opined: “We believe the proposal was withdrawn due to opposition from big investors like T. Rowe Price. , which is the second largest shareholder in News Corp. (with an 18 percent position) behind the Murdoch family. T. Rowe indicated that they believed a combination would further undervalue News Corp. shares.”

News Corp., headquarters of The Wall Street Journal, the new york post officeAustralia’s Dow Jones, the giant of Foxtel pay-TV and digital assets, is now setting its sights on selling a business some investors have been clamoring for. The firm said Wednesday it is considering the sale of Move, which operates real estate listing site Realtor.com, to CoStar Group, which provides information and analysis to the real estate industry. News Corp. owns an 80 percent stake in Move, while Australia’s REA Group, of which News Corp. owns a majority, owns the other 20 percent.

The deal “would nullify potential synergies with Fox Corp.,” Wolfe Research analyst Peter Supino argued in a report on Wednesday. He also commented on the “risque relationship” between Murdoch’s two companies. “If one were to go back and find cracks in the previous relationship, one would quickly discover that Fox Corp. spent years compensating News Corp.’s legal expenses related to the UK hacking scandal,” Supino wrote. “But truly ironically, Fox now finds himself in court defending himself against defamation allegations by Dominion Voting Systems for voter fraud related to the Trump-Biden runoff. We believe this was a significant obstacle to gaining extended family approval of a Fox/News Corp. relationship.”

But it’s unclear what the lack of a marriage will mean for Fox Corp., whose assets include the Fox broadcast network, Fox News, Fox Sports and more, and which has been described on Wall Street as an attractive acquisition target and a potential suitor. from other businesses. (News Corp., whose traditional media businesses such as book publisher HarperCollins and its newspapers were seen by some as a drag on Fox.) As a potential buyer, the field of sports betting is often seen as a likely area where Fox could seek growth through deals.

The Street is also weighing in on Fox’s appetite for deals. “Return to the dating scene for Fox, or better solo?” Supine asked. “The rationale for a Fox/News Corp. merger was that the combined balance sheets would provide enough scale to pursue other opportunistic deals, with sports betting an example of assets that could leverage the strength of both companies in news and sports.”

The Wolfe analyst maintained his “underperform” rating on Fox shares with a $28 price target. “While Fox’s news and sports-driven portfolio is better suited than most TV headlines to weather increasingly intense cyclical and secular headwinds, it is heavily leveraged in the pay-TV business and grappling with a negative macro environment”, Supino explained about his rating.

Despite the broader focus of the deals on the media and entertainment industry, other experts have also suggested that Fox could succeed with its more narrowly defined portfolio of news and sports assets rather than adding to that mix.

“Fox decided in 2019 to go against the grain and double down on the linear package. This is why it sold much of its asset base to Disney and emphasized news and sports as drivers of cable affiliate prices and broadcast replay fees,” said Tim Nollen, Macquarie analyst. , who has a “neutral” rating and a $30 price target on the stock. , featured in November.

MoffettNathanson analysts Robert Fishman and Michael Nathanson, who have an “outperform” rating with a $46 price target on Fox shares, argued late last year that its shares have upside potential. “As an independent company, Fox Corp. is beginning to see its current strategy pay off with stronger fiscal first-quarter results and the remainder of fiscal 2023 buoyed by the next round of affiliate fee increases, the Super Bowl and political advertising. , Tubi, World Cup and the most positive for the final result: Thursday night football the losses disappear,” Fishman and Nathanson touted.

Alex Weprin contributed to this reporting.

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