Wall Street experts take a close read on the plan by News Corp and Fox Corp to study a recombination, and evaluate whether other deals could be in the works.
What has changed since then? And why re-merge now? Questions, along with alternative deal suggestions, were also a key part of Wall Street analysts’ reactions. “The announcement is surprising since News Corp was separated from Fox in 2013 to eliminate the conglomerate discount and enable both entities to trade close to their intrinsic valuations,” wrote Barclays analysts Kannan Venkateshwar and David Joyce.
“Since then of course both companies have changed quite a bit, but what hasn’t changed is the fact that both News Corp and Fox continue to trade a significant discounts to their respective peers. Therefore, a recombination in itself is unlikely to solve this valuation problem for either company.” The Barclays experts don’t see significant cost savings either. “Strategically, there is also very little business overlap between the two companies to rationalise the announcement on synergies,” they wrote. “There is no obvious immediate synergies, outside of some corporate expense savings, that are likely to be available.” Warned the duo: “this announcement is likely to further harden investor perceptions about assigning valuation discounts to Murdoch entities.” Meanwhile, Wells Fargo analyst Steven Cahall also looked at other deals, calling the recombination of Fox and News Corp “not an overly obvious transaction.” In his report though, he did note: “However, since the media and news ecosystem has arguably gotten more challenging on the linear side. Fox News is around 65 percent of Fox’s earnings before interest, taxes, depreciation and amortisation on our fiscal year 2023 estimate of $2.2 billion, and we can see how combining Fox News with the news assets at News Corp could deliver content creation and distribution synergies.” Last year, the analyst had pushed for a News Corp deal, but not in the way Murdoch seems to envision it. Cahall argued that Fox “should spin Fox News into News Corp while looking at ways to combine broadcast/cable sports nets/stations with sports betting.” In that context, he noted on Monday that Fox owns shares in bookmaking holding company Flutter Entertainment, is a partner in Fox Bet Super 6 and has an option for a major minority stake in FanDuel. Cahall added, “We think news is a high-margin business, and as such a Fox News+News Corp entity could handle most of the combined debt load. By contrast, sports is levered by nature due to rights cost growth.” (One potential catalyst is that News Corp activist shareholder Irenic Capital Management is pushing a plan, its co-founder Adam Katz
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