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Why investors might buy a News Corp publishing spinoff

News Corp’s share price has jumped as investors cheer reports that the giant company is planning to spin off its $8 billion publishing division. The News Corp analysts we spoke with,not surprisingly, like the idea of a restructured the company — but perhaps more interestingly, they are also optimistic about the prospects of a standalone publishing corporation.

Here’s how a look at a future News Corp (s nws) and Publish Corp (our name) and why both could be good investments.

Creating a new corporation

Late Wednesday night, News Corp’s board approved the plan to split the media conglomerate into two pieces. Here’s what is likely happen next:

  • News Corp creates Publish Corp as a new independent entity to act as a holding company for book and newspaper assets
  • Current shareholders will be offered shares in Publish Corp, which they can accept or decline
  • Publish Corp begins operations and possibly prepares an IPO of its own to raise more capital

While the corporate process is fairly predictable, there are some important strategic questions that will only be decided in the coming year. Two are particularly important. The first is whether News Corp decides to put certain publishing assets into Publish Corp or simply sells them outright. The second is how much cash and debt News Corp will distribute to Publish Corp.

Why newspapers may be better off without News Corp

News Corp’s share price is up nearly 15 percent over the last month while the rest of the market stayed flat. Investors clearly believe the company would be better off cutting ties with its publishing division in order to focus on its highly profitable and growing broadcasting and entertainment empire.

But what of the publishing division itself? The News of the World hacking scandal has created a perception in some quarters that the publishing part of News Corp is little more than a money-losing legal quagmire. A look at the books and interviews with analysts at two major investment firms, however, make clear this is hardly the case.

News Corp’s publishing division made more than $800 million in profit last year and most parts of it are healthy. Those parts include publisher Harper Collin, which had sales of around $1.3 billion. It is profitable and is finding its footing in the new world of e-books.

Meanwhile, News Corp’s fleet of more than 100 Australian newspapers generates a majority of the publishing division’s profits thanks to a near-monopoly position, ¬†according to media analyst Ken Doctor. Those profits are expected to shrink dramatically as Australian papers are still in the early phases of the print-to-digital transition but, in the near term, the Aussie papers would provide a cash cow for any future Publish Corp.

But the real prize, according to the two bank analysts, is the expanding empire of Dow Jones and the Wall Street Journal. Both said that there is considerable value that can be unlocked in the division’s financial news brand, which is gaining traction in Germany and other non-English speaking countries. The Journal itself has a robust digital newspaper business that is estimated to generate around $200 million in annual revenue. If this model can keep growing and be replicated around the world, it could both serve as a flagship business for Publish Corp and be a good bet for investors.

Not everything is rosy in the News Corp publishing division, of course. The Times of London is a money pit and the Sunday Times is only scraping by, according to Doctor. News Corp’s other American paper, the New York Post, is also losing money. The bank analysts say, however, that properties like the Post have been a low priority amid News Corp’s rich and sprawling empire. Placed in a standalone Publish Corp, these type of assets couldn’t duck attention and would quickly have to shape up or be sold off.