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News Corp. OKs publishing spinoff

Rupert Murdoch to remain CEO of media/entertainment group

News Corp. will “wow the world as two, as opposed to merely one,” Rupert Murdoch proclaimed Thursday as the conglom announced plans to pursue the split of its entertainment and publishing divisions.

Murdoch said he’s been mulling the move for three years. He insisted it was not “a reaction to anything in Britain,” where a phone-hacking scandal has tarnished his U.K. newspapers and forced News of the World to shutter last year. Rather, “It’s a move towards the next transformational phase in our history…the next logical step in our evolution,” he said in an email to staffers followed by a conference call with investors.

Murdoch stressed over and over that the move does not represent a sloughing off of slow-growing assets but an opportunity to give both businesses a chance to shine on their own, creating, in particular, “the most ambitious, well-capitalized and highly motivated publishing company in the world.”

Murdoch, who launched his global empire 60 years ago with one newspaper in Adelaide, Australia, has remained devoted to the sector and acknowledged this was hard choice for him. “I don’t want to hide the fact that I spent my life in this (business) and it’s a very big move and a very big decision to say we will go forward with this,” he said. “Our publishing assets are greatly undervalued by skeptics. Through this transformation, we will unleash their real potential.”

For all his long consideration, the split happened at rapid-fire speed over the course of three days as the board unanimously agreed late Wednesday to move ahead.

Wall Street, which holds a less favorable view of publishing than Murdoch, has been agitating for a split, and investors were thrilled as it unfolded this week, sending News Corp. stock soaring. It rose 11% over two days, settling back to earth on Thursday, closing down 0.62%.

The move is seen as a feather in the cap of chief operating officer Chase Carey, who has been prodding the company to restructure, in part by focusing on assets it fully controls by selling off or buying in various pieces. He had warmed to the idea of a split before Murdoch and, it seems, won’t have an operating role at the publishing company.

Murdoch, 81, will remain chairman of both new groups as well as CEO of the entertainment arm. Carey will retain his title as COO and prexy at the entertainment business. There was no signal as to who would run publishing. “We have a wonderful group of managers in the whole of News Corp. to choose from,” Murdoch said. “This will take many months to complete, and we are in no hurry to make a decision on that.”

The split makes News Corp.’s succession ever more intriguing since there’s suddenly a much bigger stomping ground. Murdoch’s oldest son Lachlan, who left the conglom in 2005 and moved back to Australia, likes the publishing biz. Younger son and heir apparent James was running the international and U.K. operations when the hacking scandal erupted last summer and is now back in New York with a damaged reputation. Daughter Elisabeth is a successful media entrepreneur who founded Shine Group and sold it to News Corp. just over a year ago.

Murdoch has never been shy about saying he wants to keep News Corp. in the family and run by the family, which will retain circa 40% voting control of both companies. But the hacking scandal raised Carey’s profile and has had many on Wall Street and in Hollywood wondering if Murdoch would take the enormous step of promoting him to CEO.

While devoted to print and ink, Murdoch has also been a pioneer in digital publishing. The Wall Street Journal was the first and most successful newspaper to charge for online subscriptions. Murdoch also launched the first tablet-only newspaper, the Daily, which has had mixed success but showed the potential of the form.

“People are still buying pure papers printed (from) wood but are equally getting their news from many other places. I made a decision that people will pay for news, that it is the most valuable commodity in the world as the world gets more complicated,” he said. He plans to stress digital at both News Corp. companies.

“Today there are 30 million tablets in use in the U.S. and 75 million worldwide. In five years’ time, there will be at least 75 million tablets in the U.S. and 375 million in the world. Smartphones will get far smarter and grow rapidly over the next five years, from 120 million active phones to 225 million in the U.S., and from 835 million to 1.7 billion in the world,” he said. “These technologies will permeate all parts of life — including education — and it is my firm belief that these two companies will be best positioned to compete in this rapidly evolving global economy and distribute our premium content on these platforms.”

The new publishing company will house the Wall Street Journal, Dow Jones Newswires, HarperCollins, the New York Post and the Daily; Australian papers the Australian, the Herald Sun, the Daily Telegraph and the Courier Mail; and the Times, the Sunday Times and the Sun in the U.K. It will also cover the integrated marketing services group and new digital education group, including Wireless Generation.

Entertainment assets include Fox Broadcasting, 20th Century Fox Film, Twentieth Century Fox Television, Fox Sports, Fox Intl. Channels, Fox News Channel, Fox Business Network, FX, Star, the National Geographic Channels, Shine Group, Fox Television Stations, BSkyB, Sky Italia and Sky Deutschland.

Each company will have a separate board of directors but share services where possible.

The split will take about 12 months to close, with current News Corp. holders getting one share in the new company for every share they own. The publishing and showbiz entities will keep News Corp.’s two classes of stock, A and B, also called voting and non-voting.

Asked about key hurdles to the deal, Murdoch, who appeared to be back in form after a year on the firing line, said, “Oh, I don’t know, lawyers. And governments.”

Specifically, the split needs shareholder approval, which won’t be a problem; regulatory approval; and favorable rulings from tax authorities in various countries.