LOS ANGELES — Under pressure to limit contagion from the British phone-hacking scandal, Rupert Murdoch’s News Corp. said Tuesday that it is considering splitting into two publicly traded companies.
The move comes as Britain’s communications regulator, Ofcom, enters the final stages of its review of whether satellite TV firm British Sky Broadcasting — of which News Corp. holds a 39 percent stake — is “fit and proper” to hold a broadcast license.
The separation of News Corp.’s tainted newspaper division from the lucrative TV and movie assets might appease regulators, analysts said.
“I’m not saying it completely ameliorates Ofcom’s concerns. But I think it helps,” Canaccord Genuity analyst Tom Eagan said.
British investigators have been probing allegations that News Corp.’s U.K. newspaper journalists hacked into phones and bribed public officials in the hunt for scoops. The probe has caused the company to abandon its bid for full control of British Sky Broadcasting.
A split could help the company avoid being forced to sell off its remaining stake, worth some $6.9 billion.
The media conglomerate did not specify Tuesday which businesses each company would contain.
The Wall Street Journal, News Corp.’s flagship newspaper, reported late Monday that the company is considering separating the newspaper and book publishing businesses from the entertainment arm, which includes Fox News Channel, its broadcast TV network and the 20th Century Fox movie studio.
The entertainment arm is far more profitable. It accounted for about 75 percent of the company’s revenue and nearly all of the operating profit in the first nine months of the fiscal year, which ends this coming Saturday.
Bernstein analyst Todd Juenger said in a research note that the split would allow the company to invest more in the growing entertainment field “without the baggage of publishing.”
Investors welcomed the news. News Corp.’s stock rose $1.72, or 8.5 percent, to $21.80 in mid-afternoon trading. During the day, shares reached as high as $21.89, the highest level since hitting $21.90 on Oct. 25, 2007.
A former News Corp. executive familiar with internal company deliberations says such a split has been talked about for years, although discussions gained new momentum in the wake of the phone-hacking scandal, which erupted last July.
The split would allow Murdoch to keep control of his prized publishing operations through his voting shares while pleasing investors who have viewed the newspapers as a drag on shareholder value.
The 81-year-old billionaire built the company from a single Australian newspaper he inherited from his father. The Murdoch family controls about 40 percent of News Corp.’s voting shares.
The former executive, who spoke on condition of anonymity in order to speak candidly about internal company deliberations, said no final decision has been made.
Evercore Partners analyst Alan Gould said the publishing assets, which include Dow Jones & Co. and newspapers such as The Times of London, could be worth about $5 billion. Without them, he estimated revenue growth of the bigger TV and movie entity would nearly double to about 7 percent a year.
It is unclear if the spun-off publishing unit would also bear the legal costs of the U.K. probe. In the first nine months of the fiscal year, probe costs have totaled $167 million.
The point of a split is not to create a smaller company “that would just wither and die,” Eagan said. It would have to contain enough profitable businesses to attract investors.
On Monday, investors buying News Corp. stock were paying the equivalent of $5.80 for every $1 of operating earnings that the combined company is expected to generate this year, according to Gould. That is 20 percent lower, or $1.50 less, than investors are paying for more pure play TV and film companies like CBS Corp. and Viacom Inc.
Do the math on News Corp.’s expected $6.6 billion in operating earnings this year, and that means the company is being valued $10 billion less than its TV and film rivals. Gould says the idea behind the split is to capture some of that $10 billion. He believes the company could do it and is recommending that his investing clients buy the stock.