Australia | Oct 18 2010
This story features NEWS CORPORATION. For more info SHARE ANALYSIS: NWS
By Greg Peel
The world was shocked when Rupert Murdoch bought MySpace for US$600m wondering how on earth News Corp ((NWS)) would ever see a return. It wasn't long before MySpace was valued at US$6bn. Then along came Facebook.
Facebook quickly and substantially rendered MySpace almost obsolete, taking social media platforms to a whole new level. Now MySpace is proving a drag on News Corp's earnings and despite relaunching with an updated look and feel this week the site is still an asset Murdoch would like to prevent further losses on.
Maybe an opportunity has arisen.
The speculation in the US at present is that AOL is looking to make a takeover bid for Yahoo! In recent years Google has been to Yahoo as Facebook has been to MySpace. Yahoo's creators were nevertheless roundly criticised a couple of years ago when the company knocked back a pretty good offer from Microsoft. But as Google's dominance becomes more entrenched, perhaps now is time for the two lagging search engines of AOL and Yahoo to join forces.
The press has also raised the possibility of News Corp making an offer for Yahoo.
The analysts at BA-Merrill Lynch reject this notion, suggesting News is more likely to take a strategic stake in Yahoo than an all-out acquisition given the impact on the News' balance sheet and credit rating. However, from a minority position News may well be able to use MySpace as a bargaining chip as it could theoretically, says Merrills, be bolstered by a broader collection of online assets and traffic and advertising potential.
This might ultimately lead to a deconsolidation of MySpace's US$100m-odd drag on News Corp's FY11 earnings, suggests Merrills.
It's only speculation. Merrills retains its Buy rating on News.
Click to view our Glossary of Financial Terms
CHARTS
For more info SHARE ANALYSIS: NWS - NEWS CORPORATION
