NEW YORK — Rupert Murdoch’s News Corp. is moving toward an outright sale of its book-publishing unit HarperCollins, Wall Street sources said, in the latest move by News Corp. to rehabilitate its image on Wall Street.

While details are still sketchy, the most likely buyer is seen as Bertelsmann, owner of Bantam Doubleday. Neither News Corp. nor Bantam Doubleday would comment Wednesday, although Bantam has said in recent weeks it is interested in acquiring a trade publishing house.

People close to News Corp. said Murdoch has “washed his hands” of the publisher, which lost $7 million in the March quarter and whose earnings were down 79% in the first nine months of the year to $11 million.

Murdoch recently was quoted saying News Corp. was considering establishing a strategic partnership for HarperCollins with another company but sources said News Corp. will sell the publisher outright.

Aside from ridding News Corp. of a declining business, the deal would help Murdoch win back support on Wall Street, where his company has been out of favor since it embarked on a series of expensive acquisitions.

News Corp. stock is languishing near year-lows, missing out totally on the stock-market boom that has taken entertainment rivals like Time Warner Inc. and the Walt Disney Co. to record highs.

Woos Wall St.

News Corp. is trying to win back investors. Last month it gave up on its quest to establish a satellite TV service by selling its sat-TV interests to the Primestar joint venture of cablers. At the same time, News Corp. announced the long-anticipated acquisition of Intl. Family Entertainment Inc., but kept the direct cost of the deal low by doing it through Fox Kids Worldwide, which is 50/50 owned by News Corp. and Saban Entertainment.

In the past few weeks News Corp. has sold some publishing assets in Australia and agreed to sell TV stations owned by Heritage Media Corp. once it completes its acquisition of Heritage, keeping the cost of the Heritage deal down.

News Corp. eliminated another problem Wednesday when it confirmed that it has won an agreement with Time Warner Inc. for carriage of Fox News Channel on two-thirds of TW’s cable systems (Daily Variety, July 23). The deal ensures Fox News will break even on schedule, in about two years’ time.

“It eliminates another black hole,” said one money manager.

But none of these steps has so far won any converts on Wall Street, where investors sold News Corp. stock down 6ยข to $18.12 Wednesday.

Wall Street analysts said the company’s prospects are still overshadowed by fourth-quarter earnings, which are expected to be weak partly because 20th Century Fox will have to take big writeoffs on film releases such as “Speed 2.”

Next fiscal year, the earnings will be depressed because News Corp. will have to start accounting losses on start-up businesses like Fox News, which until now have not been affecting the profit and loss statement.

“A lot of event risks are knocked out of the stock but people are still not comfortable with the earnings outlook,” says Gary Farber, an analyst with NatWest Securities.

Some Wall Streeters said News Corp. needs to announce a stock buyback program as a way of demonstrating Murdoch’s support for the stock price and reversing perceptions created when News Corp. made some expensive acquisitions using its stock, such as last year’s acquisition of New World Communications.

One money manager said that some people think Murdoch is an “asset buyer giving away extremely cheap stock to buy expensive assets; so what he needs to do is to demonstrate that he can sell assets, like HarperCollins, and buy back a bunch of this stock. That would send a big message,” said one money manager.

As for HarperCollins, “It’s a very tough sale,” said Robert Gottlieb, an exec VP and top literary agent at William Morris. “Large media companies are in the process of divesting themselves of these publishing companies. The HarperCollins list does not lend itself well to integration into an entertainment conglomerate, because it’s primarily a nonfiction business.”

Buyback question

That rules out buyers such as Viacom Inc.’s Simon & Schuster or S.I. Newhouse’s Random House, investment bankers said. Gottlieb said Bertelsmann could bite because “the Germans love to have big chunks of the publishing business.”

Last year News Corp. sold HarperCollins’ educational publishing unit, which is the more valuable business, to Pearson plc for $580 million.

Even if News Corp. completes the sale of HarperCollins, it’s not a slamdunk that Murdoch would use the money to buy back stock. News Corp. has historically not bought back its own stock and it’s not clear whether it would start now.

A News Corp. spokesman declined comment on the company’s attitudes to buybacks.

contributor:Gary Levin and Chris Petrikin

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