Huntleys' Stock of the Week

Recommendations: Accumulate

NWS's current stock prices

Investment Rating

NWS is a globally integrated and diversified media company. Creation of in-depth regional and national content is distributed through different media channels. Consolidated EBIT is derived from Film 22%, Television 21%, Cable Programming 17%, Magazines 6%, Newspapers 10% and Book Publishing 3%. Associate entities add 18% of EBIT with BSkyB adding 7% and Direct TV 7%. Revenue growth from Pay TV assets offsets declines from traditional Newspaper and Book Publishing sales. NWS aims to be at the forefront of offering as much content to as many customers in as many different media formats. NWS has been re-incorporated in the US, one Australian CHESS Depositary Interest (CDI) equals one US share. Shares are divided into Class A non-voting (NWSLV) and Class B voting (NWS).

Event

* The Bancroft family, who control Dow Jones through super-voting shares, has accepted News Corp's $5 billion offer to be acquired.
* The deal must still be approved by all shareholders, but we expect the vast majority of the outside shareholders, who account for 29% of the company's voting power, will approve the deal, given the massive premium of News Corp.'s offer

Impact

* CEO Rupert Murdoch has loads of experience running newspapers and will probably be able to improve the profitability of Dow Jones' newspaper properties, including The Wall Street Journal. News Corp. also will be able to leverage the well-respected business content generated by Dow Jones' journalists on other platforms, especially its planned cable business television network expected to launch Oct. 15. Even if the firm fails to realize these synergies, the sheer size of News Corp. ($68 billion market capitalization) relative to Dow Jones ($5 billion market cap) makes this acquisition fairly neutral to News Corp.'s valuation, in our opinion. Therefore, we are maintaining our fair value estimate for News Corp.

Recommendation Impact Accumulate

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