News Corp Dumps Phoenix Shares

When the history books are written, the ongoing withdrawal of global media giants News Corp (Nasdaq: NWS) from China could do down as one of the longest divorces of all time, including the latest news that the company is further selling down its stake in one of its China partners. But we’ll need to keep a close eye on this global media group controlled by billionaire Rupert Murdoch in this instance, since this latest sale of a relatively minor asset could be the prelude to a much bigger move into the fast growing and also fast-opening China film and TV market.In this latest news, News Corp has announced it is getting rid of some 264 million shares of Hong Kong-listed Phoenix Satellite Television (HKEx: 2008), selling the shares for HK$2.72 each or 8 percent below the company’s previous closing price. (Phoenix announcement) The news didn’t do much to help Phoenix’s shares, which were down more than 7 percent in Friday trade in Hong Kong.

The shares sold by News Corp amount to 5.28 percent of Phoenix’s total stock, and News Corp said it will still hold 12.16 percent of Phoenix after the sale. But I wouldn’t be surprised to see News Corp sell the rest of its stake in the not-too-distant future if it can find a buyer. The company even hinted at that possibility, with executive James Murdoch saying the sale was part of a broader global effort to simplify the company’s “affiliate ownership structures.”

From my perspective this looks like the continuation of News Corp’s ongoing sale of its stake in an asset that never quite fulfilled its earlier potential. News Corp was one of Phoenix’s original major stakeholders when the company was set up about a decade ago by Liu Changle, a former member of the People’s Liberation Army with strong connections in China’s media circles. But News Corp chief Rupert Murdoch quickly discovered that Liu had little or no interest in helping him gain a stronger foothold in China, and the relationship never really developed further.

As a result, News Corp sold off about 20 percent of its original 37.5 percent stake in 2006 to China Mobile. This latest deal drops News Corp’s stake in Phoenix to 12.16 percent. The ongoing divorce between News Corp and Phoenix isn’t too surprising, and is part of a broader retrenchment of News Corp’s bigger China operations. In 2010, the company sold a majority of its stake in its 3 Chinese TV channels to a Chinese private equity fund, leading many to say the big potential it once held out for China never really materialized.

As a longtime China media watcher, I do find it a bit unusual that News Corp is dumping its Phoenix shares now, as China does finally seem to be relaxing its grip a bit on the domestic media market. In 2 of the most significant moves, it has allowed Disney (NYSE: DIS) and DreamWorks Animation (NYSE: DWA) to both form animation joint ventures for the domestic market.

In fact, News Corp isn’t completely in China withdrawal mode, as it announced last year it would buy a 20 percent stake in local film distribution company Bona Film (Nasdaq: BONA). (previous post) All this leads me to believe that perhaps Murdoch has some bigger plans that he’s working on, and is quietly unloading his smaller, underperforming assets in the run-up to a larger deal. If that’s the case, perhaps we could see a major announcement coming from News Corp in the next 12 months, potentially involving its investment in a movie and TV production house that would make filmed products for the fast-growing China market.

Bottom line: News Corp’s sale of part of its stake in Phoenix Satellite is part of its ongoing China retrenchment, which could include a major film-making investment over the next 12 months.

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