News Corp. said late Friday that it will take a pretax charge of $1.2 billion to $1.4 billion in the current quarter to write down assets related to its publishing unit, as the company prepares to split its business between its newspaper and entertainment operations.
The company said the goodwill impairment charge was primarily for its Australia newspapers though it gave no more details. It also said it expected reduced cash flows in the future.
The charge will be taken in the quarter ending June 30 and could effectively wipe out News Corp.'s profit. Analysts were expecting News Corp. to report a pretax profit of $1.4 billion, according to Thomson Reuters.
Earlier Friday, News Corp. said its board has authorized a $500 million stock repurchase program for the publishing operations, partially answering the question of how the new News Corp. will use $2.6 billion in cash it will have when the spin-off takes place, expected to occur on June 28.
News Corp. stock, which was recently named one of the 10 most-loved stocks by hedge funds, is up more than 30 percent year-to-date. But, with gains like that, some funds are starting to cash in. The top 50 hedge funds reduced their holding by more than 20 percent according to financial research from FactSet, which for three of the funds was their biggest individual equity sale.
Shares ticked slightly higher in regular trading Friday, up 0.7 percent, and were unchanged after-hours.
News Corp. is preparing to hive off its publishing assets as newspapers around the world face unprecedented challenges because of plunging advertising revenue and readers who increasingly prefer to read news on smartphones and tablets.
News Corp. publishes 140 newspapers in Australia. including The Australian. Its U.S. assets include the New York Post, Dow Jones' The Wall Street Journal, and the coupon insert company News America Marketing and the book publisher HarperCollins.
The company had warned for several quarters that its Australian newspapers were facing punishing declines in advertising revenue.
Gabelli & Co. analyst Brett Harriss forecast before the news of the goodwill charge that the newspapers in Australia have an estimated value of $1.8 billion, while Dow Jones's value is estimated at $1.5 billion.
Last quarter, News Corp. reported a 35 percent drop in operating income for its publishing division because of lower advertising sales at its Australian newspaper.
In 2008, News Corp. took a $2.8 billion non-cash charge on its purchase of Dow Jones.
Poison Pill Defense
The board formally approved that current News Corp. stakeholders will receive one share in the new publishing company—that will retain the News Corp. name—for every four shares of the existing company they hold.
They will remain shareholders in the entertainment assets under the 21st Century Fox name, including the Fox broadcasting network, movie studio and lucrative equity stakes in pay-TV providers.
To prevent hostile takeovers, News Corp. put in place a poison pill provision for one year after the split. It will be triggered if someone acquires more than 15 percent of the stock of either company.
News Corp has a history of potential takeovers. In 2004, Liberty Media's John Malone had quietly snapped up a 20 percent voting stake in the company. The move prompted Murdoch to swap his stake in DirecTV and other assets for Malone's shares in News Corp.
The new News Corp. will be an independent publicly traded company and 21st Century Fox will retain no ownership interest in News Corp., the company said.
Chairman Rupert Murdoch and Chief Executive Officer Robert Thomson will give more details about the company at an investor day conference on May 28.
The company named current directors Lachlan Murdoch and James Murdoch to the board of the new News Corp. New additions to the board include Thomson; Ana Paula Pessoa, a partner at Brunswick Group; John Elkann, head of Exor SpA ; and Masroor Siddiqui, head of investment firm Naya Management.
At 21st Century Fox, new board directors include Delphine Arnault, deputy general manager at Christian Dior Couture; Jacques Nasser of One Equity Partners; and Robert Silberman, executive chairman of Strayer Education.
Rupert Murdoch will be chief executive of 21st Century Fox and chairman of both companies.