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Murdoch agrees to split News Corp.

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As expected, News Corp. (s nws) announced Thursday morning that it is starting the process to split into two public companies — media/entertainment and publishing with Rupert Murdoch as chairman of both.

Rupert Murdoch would be CEO only of the entertainment company, creating a new guessing game for now by leaving the publishing slot open. Current News Corp. COO Chase Carey would be president and COO of the media and entertainment company (and out of the newspaper business completely).

Murdoch told his staff in a memo (read in full here): “We will wow the world as two, as opposed to merely one.”

The two public companies would have the same dual-class stock set up as existing News Corp., allowing Murdoch to retain control over both. Under the proposal, shareholders would get one share in the new company for each share they hold in News Corp; that formula could change.

The company is spinning it as a split into equals:

The proposed transaction would create global category leaders in both publishing and entertainment: a publishing company, which would be comprised of News Corporation’s newspapers and information businesses in the U.S., U.K., and Australia, the Company’s leading book publishing brands, its integrated marketing services company, its digital education group, as well as its other assets in Australia; and a global media and entertainment company, which would encompass News Corporation’s broadcast and worldwide cable networks, leading film and television production studios, television stations and highly successful pay-TV businesses in Europe and India.

When you get past the PR spin, though, what News Corp. is doing is spinning off a much smaller company. The remaining media and entertainment company will be missing about $8 billion in revenues but its profit margins should be considerably higher and Wall Street will value it at considerably higher multiples.

News Corp. expects the process to take about a year, pending regulatory approval and clearing other hurdles.

A surprise down under

Most of the predictions about how the split would work were spot on. The one surprise so far: the publishing company will get all of News Corp.’s Australian assets, not just the newspapers and digital business, which will put it in the pay-TV and cable programming biz. News Corp. owns 25 percent of Foxtel and has a bid out to pick up another 25 percent of that and the remaining 50 percent of its Fox Sports by acquiring Consolidated Media Holdings.

For more from Murdoch, see The Murdoch media tour: Spinning the spinoff