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News Corp. to restructure HarperCollins

NEW YORK — News Corp. said Monday it doesn’t plan to sell its troubled book publisher HarperCollins, but instead will narrow the focus of its business and will take a $270 million one-time charge against earnings to cover restructuring costs.

The charge, covering writeoff of inventories and author advances, severance payments for 420 job cuts and lease terminations relating to the closure of imprints, will wipe out News Corp.’s profits for the fourth quarter to June 30, analysts said. News Corp. stock fell 25¢ to $18.12 Monday.

After weeks of speculation about HarperCollins’ future, fueled by reports of cuts ranging from closure of offices and imprints to cancellation of book contracts, News Corp. took the unusual step of “reaffirming its long-term commitment to the business.”

“HarperCollins is a key asset and immensely important to our company,” News Corp. CEO Rupert Murdoch said in a statement. News Corp. said that while it “receives expressions of interest in many of its businesses,” it has “no plans to sell” the division.

Murdoch is believed to have considered a sale of the publisher (Daily Variety, July 24) but apparently decided against that, possibly because he couldn’t get the price he wanted, industry execs speculated Monday.

The decision to keep the publisher won’t be popular on Wall Street, where entertainment congloms like News Corp. have been under pressure for some time from institutional investors to slim down by selling unrelated businesses such as book publishing.

“I can’t imagine investors will be thrilled with this,” Lehman Bros. analyst Larry Petrella said. “I don’t see it as a big growth business at this point and maybe it would be better getting rid of it.”

News Corp. president Peter Chernin said News Corp. had “historically been a publishing company” rather than an entertainment company which had diversified into publishing. That made HarperCollins “very much part of our core business,” he said.

Chernin denied that News Corp. had got to the point of negotiating the sale of HarperCollins, although he said News Corp. received unsolicited approaches about selling the business.

Whether those unsolicited approaches were at price levels to tempt Murdoch is another question, however. Industry sources said last month News Corp. would find it difficult to sell HarperCollins because the publisher sold the more valuable educational side last year.

News Corp. has also ruled out other alternatives openly canvassed in recent weeks: Last month, Murdoch said in an interview with the Wall Street Journal that he was considering putting HarperCollins into a strategic partnership with another publisher, but News Corp. execs said Monday this was not being pursued either.

Refocus efforts

Instead, News Corp. said that after a yearlong review of HarperCollins taken by the new management team led by Anthea Disney, it had decided to “focus its publishing efforts on a defined number of strategic areas in which it will pursue publishing excellence and market leadership.”

Disney said these areas would vary country by country but in the U.S. would include sci-fi, self-help, psychology, commercial fiction, literary fiction and children’s books. HarperCollins is already strong in all these areas except commercial fiction, “where we need to grow our program,” Disney said.

“We were trying to be all things to all people,” said Chernin. HarperCollins will concentrate on areas in which it can be No. 1 or 2 in the market, he said.

Disney refused to identify any area in which HarperCollins won’t publish, but it is expected that the company will cut back noncommercial fiction.

The new strategy’s aim is partly to improve HarperCollins’ profitability, News Corp. said. The book unit’s operating earnings plunged 79% in the first nine months of the year to $11 million.

The company has had to weather the fallout from several widely publicized cutbacks in recent months. Among these were the folding of Basic Books and Harper Reference imprints into its Adult Trade division; and the canceling of more than 100 books it had contracted to publish.

But HC’s cutbacks come at a time when the entire publishing industry is facing a recession — hardcover sales have slipped in the past two years and returns are crippling the industryAnd the pullback doesn’t mean HarperCollins will spend less on advances for bigname authors. “We are more than prepared to step up aggressively for those books that have an emotional and commercial pull,” Disney said.

Indeed, Chernin said the future strategy would be to “avoid high advances for the middle of the list that don’t bring that big an upside.”

Displaying its ability to compete, the publisher recently outlasted several other houses during a protracted auction for the paperback rights to “The Perfect Storm,” the current bestseller by Sebastian Junger. HC paid $1.2 million for the right to publish the book next June under its HarperPerennial imprint.

As part of the narrowing of the business, HarperCollins will reduce its worldwide work force of 3,200 by 420, although it has already made about half of those cuts, Disney said. About 40 U.S. jobs will be affected in all areas of the company.

Analysts said the $270 million onetime charge, while big historically for book publishers, was not a major issue for investors given that News Corp.’s fourth quarter was expected to be depressed by film write-downs. “People knew it was going to be weak … instead of being a washout, it’s like a flood,” Natwest Securities analyst Gary Farber said.

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