Media Fortune Fame & Folly

Will News Corp SELL next?

Just one week after the New York-based News Corp acquired Investor’s Business Daily, it has announced a deal by its HarperCollins book publishing division to buy HMH Books & Media, based in Boston, US, for $350m cash from parent company Mifflin Harcourt. HMH had revenues of $191m in 2020 and earnings of $27m (a 13x multiple).

It has a catalogue of over 7,000 titles and is particularly strong in children’s books, literary fiction and lifestyle publishing, including Lord of the Rings. Other core properties of HMH Books & Media include the Peterson Field Guides, which cover topics ranging from birds to fish to wildflowers; lifestyle titles from Martha Stewart; and the Carmen Sandiego franchise.

HarperCollins expects cost savings of up to $20m for the combined business which will have revenues of $2bn. 

Both these latest deals indicate that News Corp is looking to expand through select acquisitions after a period of slim-down with sales of non-core business including the coupon business News America Marketing and the video-advertising platform Unruly.

News Corp shares have risen sharply, almost trebling in the past year.

The HMH deal marks the second sale of a well-known publisher in recent months. Bertelsmann, owner of Penguin Random House last year beat HarperCollins to buy Simon & Schuster from ViacomCBS. for $2bn. It is still subject to regulatory review in the US and UK.

The HarperCollins acquisition underlines the book publishing sales growth provided by the pandemic during 2020 after years of no growth. In the six months ended 31 December, HC revenue increased by 18% to $1bn, and EBITDA increased by 56% to $175m – some 23% of the News Corp total. In addition to the rising sales of books and audiobooks, the pandemic has also driven up back-catalogue values, hence the HMH deal. For the three months ended Dec 31, digital sales represented 18% of HC revenues.

The revenue growth was evidentin every category wit h the success of titles such as Didn’t See That Coming by Rachel Hollis, The Happy in a Hurry Cookbook by Steve Doocy, The Greatest Secret by Rhonda Byrne and Code Name Bananas by David Walliams.

The general strength of book publishing is further underlined by the UK’s £240m Bloomsbury Group whose share price has increased by 34% over the 12 months of the pandemic.

News Corp – whose flagship newspapers in the US, UK and Australia are scarcely profitable (just $44m of EBITDA in the six months to Dec. 31) – continues to look very under-valued at some $14.5bn: its 61.6% share of Australia’s REA property digital may account for some 60% of the total market cap.

Many different strategies – short of an unlikely, complete breakup of News Corp – would seem possible.

Almost nobody believes that Rupert Murdoch (who celebrated his 90th birthday last month) will de-merge or divest the group’s capex-hungry consumer newspapers despite (or, perhaps, because of) the fact that they are almost certainly cash-negative in aggregate. The recent Australian deal to secure annual “news subsidies” of some tens of millions of dollars from Facebook will help, of course. But the deal is believed only to be for three years, which might just prompt some action in the meantime.

The short-cut to another big payday for the Murdoch family, though, could be the sale of Dow Jones, publisher of the Wall Street Journal whose $1.7bn revenue/ $214m EBITDA might produce a valuation of some $6-7bn. Bloomberg could be first in the line for an auction or a pre-emptive deal.

However, the $1.1bn-revenue property digitals in the US and Australia, with $345m EBITDA, might be worth yet more than Dow Jones. In either case, News Corp could decide to de-merge the operations and distribute the shares to existing shareholders.

Even after its latest shopping spree, it is difficult to believe that News Corp won’t decide to cash in something, sometime. Its snowballing broadcasting plans in the UK (radio now, TV soon) and strategies for the expansion of Fox News (owned separately by the Murdoch-controlled Fox Corp) may prompt some kind of reorganisation and/or acquisition. Before the $71bn bonanza sale of 21st Century Fox to Disney in 2019, Rupert Murdoch had seldom been a seller. Now, anything can happen.

Additional reporting by Alex DeGroote and Sarah Risebrow

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