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Questions Loom Ahead of News Corp's Potential Split

By William Launder As News Corp. (NWS, NWSA) appears poised to unveil a historic split, many questions linger ahead of an expected Thursday announcement, such as how the media company may divide its formidable balance sheet. News Corp. owns Dow Jones & Co., publisher of this newswire and The Wall Street Journal. An announcement Thursday is expected to confirm the reported framework of the split. Specifically, News Corp. would separate its film and entertainment businesses from its generally less lucrative newspapers, book publishing and education assets, a person familiar with the matter said. News Corp. also is likely to outline some new leadership roles at the separated entities and a rough timeline for completing the split, which is expected to take at least a year to complete, the person said. News Corp.'s Class A shares traded 2.4% higher Wednesday afternoon at $22.23, after reaching multiyear highs Tuesday when the split-up plans were first reported. What's likely to be missing from Thursday's announcement are specific details on how News Corp. will divide its roughly $15.2 billion in long-term debt and $10.7 billion in cash and cash equivalents between the two entities--a matter of particular interest to analysts questioning how the publishing unit will fair as an independent entity. "Clearly the No. 1 question is their plan to deal with excess cash on the balance sheet," said Todd Juenger, analyst with Bernstein Research. In addition to capitalizing both units, Mr. Juenger suggested News Corp. grant shareholders a special dividend to absorb some of the excess cash, which he considered a "dead weight" on the company's balance sheet and stock price appreciation. BTIG analyst Richard Greenfield estimated that News Corp. would infuse the publishing division with $1 billion in cash and another $1.5 billion in debt, as he expects publishing revenues to slow over the next several years. Some of that cash also would go to paying ongoing legal and investigation costs tied to News Corp.'s phone-hacking scandal, which Mr. Greenfield expects will cost $227 million for the 2012 fiscal year and $100 million the year after. "We believe $1 billion of cash would reduce fears related to on-going litigation and the risk of even more rapid declines in publishing profits," Mr. Greenfield wrote. In comparison, News Corp. spent $167 million related to the phone-hacking investigations for the nine months ended March 31, a period when its publishing unit generated an operating profit of $458 million. News Corp. has to date booked such charges separate from its publishing division's financial results. Also Thursday, News Corp. is expected to offer some details on how it will complete its ongoing $10 billion share repurchase program, which to date is about half-completed, the person said. Other details--including how the company will divide its properties and non-executive management team, like its legal and finance ranks--will likely be clarified later during the separation process. "Most of the big news is out," Evercore analyst Alan Gould said. "But there are little things to ask like how much will they invest in education, do they want to put cash into the publishing entity to make acquisitions, and will there be a partnership to share content between the Fox News channel and Dow Jones?" Don Yacktman, whose investment fund is one of News Corp.'s largest institutional shareholders, called a potential partnership between Dow Jones and Fox Business News to be the "one wild card" on the table in terms of a split. "I see a lot of spillover potentially with that being tied in with Fox Business News," Mr. Yacktman said in an television interview Tuesday. Write to William Launder at william.launder@dowjones.com

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