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Shareholder Opposition Signals Doom for News Corp. and Fox Merger
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Shareholder Opposition Signals Doom for News Corp. and Fox Merger

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Independent Franchise Partners is opposing the proposed merger of News Corp. and Fox Corp. on the grounds that the former is undervalued. Growing discontent among shareholders threatens to thwart the recombination of both news publications.

A London-based investment firm, Independent Franchise Partners, is the latest shareholder to oppose the proposed reunion of news companies, News Corp. (NASDAQ:NWSA) (NASDAQ:NWS) and Fox Corp. (NASDAQ:FOXA) (NASDAQ:FOX).

Independent Franchise Partners is one of the largest shareholders in both entities after the Murdoch family, which has 40% of the voting rights of both companies. The firm owns roughly 7% of NWSA Class A shares and 6.6% of NWS Class B shares. Similarly, the firm also owns nearly 6% of FOXA Class A shares.

The growing investor dismissal reduces the chances of Rupert Murdoch‘s proposed re-combination of News Corp. and Fox Corp. Independent Franchise Partners is said to have told the Journal that, “[a] straight equity exchange between Fox Corp. and News Corp, would dilute and delay the realization of News Corp.’s substantial intrinsic value.”

Investor activism for the merger arises from the belief that it undervalues News Corp.’s true potential. Instead, shareholders believe that News Corp. should be split into its real estate and media businesses to uncover its full value. Last week, Irenic Capital Management also showed its displeasure toward the proposal and wrote a letter to the News Corp. board to have a special independent committee review the merger.  

Is News Corp. a Good Company?

Despite the slowing demand and viewership of print media and news publishing, News Corp. has been able to beat analyst earnings expectations consecutively for the past eight quarters.   

Interestingly, NWSA trades at a forward price/earnings per share non-GAAP (fwd P/E non-GAAP) multiple of nearly 29x, much lower than its five-year average of 37.92x. This implies that NWSA is undervalued and has room to grow.

Moreover, with one Buy versus one Hold rating, News Corp. stock has a Moderate Buy consensus rating. On TipRanks, the average News Corp. price target of $24.50 implies 34.4% upside potential to current levels. Meanwhile, NWSA stock has lost 19.1% so far this year.  

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