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05/22/2015 7:00 am EST
If a big company’s honchos are spinning off a business—suggesting they apparently don't like it—why should you? asks turnaround expert George Putnam, editor of The Turnaround Letter.
The reason is because—very often—the spun-off business will eventually perform very well. The spin-off frees the new company from the often costly baggage imposed on it by its corporate parent.
Moreover, management of the new company has the freedom to pursue new directions and seek new efficiencies. The new company management also usually has a more direct economic incentive to make its business prosper.
News Corp (NWSA)
News Corp, in its present shape, was formed in 2013 when the predecessor company of the same name split into two pieces. News Corp took on the publishing assets while the media business went to newly named 21st Century Fox.
News Corp holds some of the most prominent global newpaper brands, including The Wall Street Journal and New York Post in the US, News International in the UK and the Australian, Herald Sun, and Daily Telegraph in Australia as well as a substantial book publishing unit, cable, digital real-estate, and educational services.
Management’s primary challenge now is the transition into the digital world. But unlike some spin-offs, News Corp was not saddled with a lot of debt and it has plenty of cash and solid cash flow with which to build on its brands in pursuit of growth opportunities.
Time, Inc. (TIME)
Time, Inc. is a spin-off from Time Warner (TWX). Following several delays, Time was finally spun off in mid 2014. By certain metrics, TIME is the largest magazine publisher in the US and UK.
Popular brands include Time, People, and Sports Illustrated. Digital advertising results are growing, but that growth needs to accelerate to offset declines in print revenues.
Operations are still profitable and management is moving beyond cutting costs and selling assets to begin reinvesting in growth initiatives, including a more integrated digital ecosystem with new brands.
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