News Corp. (NASDAQ:NWS)(NASDAQ:NWSA) will take over Australia’s Consolidated Media Holdings in a A$2 billion deal that will double the stake of the media conglomerate’s Australian arm in pay-TV operator Foxtel to 50 percent, and give it 100 percent of content provider Fox Sports. The deal increases News Corp.’s pay-TV exposure just as the company is cutting costs at its print operations.
Consolidated Media shareholders voted 99.9 percent in favor of the takeover at a meeting on Wednesday. The board had backed the offer.
“Foxtel and Fox Sports are going to be two cornerstone assets in the News Corp publishing business after the demerger, and I assume the market will put fairly healthy multiples on those assets,” said Citi analyst Justin Diddams.
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In June, still reeling from a phone-hacking scandal and ongoing investigation at its British newspaper unit, News Corp. announced plans to split into two publicly traded companies: publishing and entertainment. The split, which will take about a year to complete, will create a publishing arm that includes U.K. newspapers The Times and The Sun, The Wall Street Journal, and book publisher Harper Collins, as well as Fox Sports, Foxtel, and News Corp.’s Australian newspaper assets. The entertainment arm will include other broadcast networks, as well as film and TV production studios.
With the takeover of Consolidated, pay-TV will contribute 39 percent of News Corp.’s publishing company revenues in fiscal 2014, CLSA analyst Digby Gilmour said in a note to clients last week. He estimated that Fox Sports alone would contribute 11 percent of publishing group earnings before interest, tax and depreciation, while the half-share of Foxtel — the other half is owned by telephone company Telstra — would contribute 17 percent.
Foxtel, which reported A$2.2 billion in revenue for the fiscal year ended June 30, will be an important earner for the new publishing business at a time when newspaper readership, and thus revenue, is in decline. Foxtel is Australia’s largest subscription-TV provider, with 2.3 million households signed up to its service at the end of the last fiscal year in a country where pay-TV penetration is only 26 percent.
The deal will go to Australia’s Federal Court on Friday for approval, and if surviving scrutiny, will be completed on November 19.
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