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News Corp. to split into two companies

Updated at 5:45 p.m. Eastern

(CBS/AP) NEW YORK - Rupert Murdoch's News Corp. said Thursday that the global media conglomerate has approved a plan to split into two separate companies, one holding its newspaper business and another its entertainment operations.

The Wall Street Journal, which is News Corp.'s flagship newspaper, cited a person familiar with the situation late Wednesday saying the board voted unanimously to approve the plan, and the news was confirmed early Thursday morning.

News Corp. will be divided into two publicly traded companies, both chaired by Murdoch himself. One entity will operate as a newspaper and book publishing firm. The other will be an entertainment company that includes Fox News channel, the Fox broadcast TV network and the 20th Century Fox movie studio.

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Former leader says Rupert Murdoch tried to change government policy Murdoch will serve as chairman of both new companies and CEO of the entertainment company. The Murdoch family, which controls nearly 40 percent of the voting shares in News Corp., is expected to maintain control of both companies.

News Corp.'s board will take a more formal look at the details in coming months. The separation is also subject to regulatory approval and is expected to take about a year.

The split of News Corp. is a symbolic turning point for Murdoch, the company's 81-year-old CEO. Through the years, Murdoch maintained a fondness for newspapers even as he purchased entertainment companies and built a media conglomerate with a market value of $53 billion. In hearings last summer before U.K. lawmakers, he conceded that he regularly called newspaper editors under his employ with the greeting: "What's doing?"

Investors have already applauded the change. Since news of the split broke early Tuesday, News Corp. shares are up 9 percent. They slipped 32 cents, or 1.4 percent, to $21.99 on Thursday.

News Corp. said existing shareholders will get one share of stock in the publishing company for every News Corp. share they own. The exact ratio could change. Each company would maintain two classes of stock, voting shares and non-voting shares.

Murdoch is hoping the television and movie company will be more highly valued by shareholders who hadn't been unwilling to accept the dour growth prospects of the newspaper and book business.

A question remains, however, about which entity would bear the financial risks of the ongoing U.K. probe into phone hacking and bribery. Besides legal costs, News Corp. also faces potential fines in the U.S. under the Foreign Corrupt Practices Act, which punishes companies that have bribed officials abroad.

British authorities have been probing allegations that News Corp. journalists at its now-shuttered News of the World and other papers hacked into phones and bribed public officials to gain exclusive information.

The splitting of News Corp. will be a symbolic turning point for its 81-year-old CEO. Murdoch's media empire was built on the foundation of a single Australian newspaper he inherited from his father.

News Corp. had $10.7 billion in cash and cash equivalents on hand at the end of March.

Analysts said the split will allow Murdoch to pursue the newspaper business with the same fervor he had when he began building his empire 60 years ago. It also contains the possible damage from mistakes, such as the one he made when he overpaid for Dow Jones & Co. in 2007.

"Once the companies are separated, he'll be able to make acquisitions without upsetting the valuation of the entertainment business," said Alan Gould, an analyst with Evercore Partners. "I don't worry about the acquisitions he's doing 2 to 3 years down the road in publishing."

The entertainment company will have its challenges too. While growing faster, News Corp.'s entertainment business is by no means perfect. Movie studios face declining DVD sales. One year's hits can be followed by another year's bombs. TV stations are recovering in the aftermath of the Great Recession, thanks to political ad spending and the newfound health of the U.S. auto industry.

The stalwarts have been pay TV channels like Fox News Channel and FX, which are growing quickly in places like India and Russia, where incomes are rising.

Murdoch denied the timing of the split was due to a U.K. probe into alleged phone hacking and bribery by News Corp.'s British newspapers.

Some investors were unhappy with the announcement that all of the company's Australian assets, including the planned acquisition of Consolidated Media Holdings for $2 billion, would be housed on the publishing side. Consolidated holds a 50 percent stake in pay TV operator Foxtel and all of Fox Sports in Australia.

Another complication: Murdoch said the split could cause a "moderate slowing down" of a stock buyback program. The company is nearly half way through a two-year $10 billion plan set to wrap up next June.

Here's how the split will work:

  • Newspapers, book publishing and information services such as Dow Jones Newswires will be part of the publishing company. The 20th Century Fox movie studio, the Fox broadcast TV network and the Fox News channel will be part of the media and entertainment company.
  • Shareholders will get a share in each company for every share of News Corp. they now own. That ratio may change by the time the plan is finalized. Both companies will trade publicly, under different stock tickers.
  • Rupert Murdoch will be chairman of both companies and CEO of the media and entertainment company. The company did not name a CEO for the publishing business.
  • News Corp.'s board unanimously approved the split, but it will need to approve a more formal proposal. The deal is also subject to shareholder and numerous regulatory approvals.
  • News Corp. plans to hold a special meeting of its shareholders in the first half of 2013 and expects the deal to be completed in about a year.
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