The move comes as Britain's communications regulator, Ofcom, enters the final stages of its review of whether satellite TV firm British Sky Broadcasting -- of which News Corp. holds a 39 percent stake -- is "fit and proper" to hold a broadcast license.
The separation of News Corp.'s tainted newspaper division from the lucrative TV and movie assets might appease regulators, analysts said.
"I'm not saying it completely ameliorates Ofcom's concerns. But I think it helps," said Canaccord Genuity analyst Tom Eagan.
British investigators have been probing allegations that News Corp.'s U.K. newspaper journalists hacked into phones and bribed public officials in the hunt for scoops. The probe has caused the company to abandon its bid for full control of British Sky Broadcasting. A split could help the company avoid being forced to sell off its remaining stake in BSkyB, worth some $6.9 billion.
The media conglomerate did not specify Tuesday which businesses each company would contain.
The Wall Street Journal, News Corp.'s flagship newspaper, reported late Monday that the company is considering separating the newspaper and book publishing businesses from the entertainment arm, which includes Fox News Channel, its broadcast TV network and the 20th Century Fox movie studio.
The entertainment arm is far more profitable. It accounted for about 75 percent of the company's revenue and nearly all of the operating profit in the first nine months of the fiscal year.
Bernstein analyst Todd Juenger said in a research note the split would allow the company to invest more in the growing entertainment field "without the baggage of publishing."
Investors welcomed the news. News Corp.'s stock hit a new 52-week high, rising $1.27, or 6.3 percent, to $21.35 in midday trading.
A former News Corp. executive familiar with internal company deliberations says such a split has been talked about for years, although discussions gained new momentum in the wake of the phone hacking scandal which erupted last July.
The split would allow Murdoch to keep control of his prized publishing operations through his voting shares while pleasing investors who have viewed the newspapers as a drag on shareholder value.
The 81-year-old billionaire built the company from a single Australian newspaper he inherited from his father. The Murdoch family controls about 40 percent of News Corp.'s voting shares.
The former executive, who spoke on condition of anonymity in order to speak candidly about internal company deliberations, said no final decision has been made.
Evercore Partners analyst Alan Gould said the publishing assets, which include Dow Jones & Co. and newspapers such as The Times of London, could be worth about $5 billion. Without them, he estimated revenue growth of the bigger TV and movie entity would nearly double to about 7 percent a year.
It is unclear if the spun-off publishing unit would also bear the legal costs of the U.K. probe. In the first nine months of the fiscal year, probe costs have totaled $167 million.
The point of a split is not to create a smaller company "that would just wither and die," Eagan said. It would have to contain enough profitable businesses to attract investors.
Eagan pointed to the successful spin-off of cable TV giant Time Warner Cable Inc. from the entertainment company Time Warner Inc. in March 2009. Because the cable division was more willing to pay out dividends and buy back shares, its stock price has more than tripled since then. Meanwhile, Time Warner's stock price has doubled.
Time Warner shareholders were granted stakes in both separated companies, but "overall you are better off" with the split, Eagan said.
The problem for News Corp. isn't just that newspapers and books make less money than television and film. It's also that investors value the earnings from each differently. They are willing to pay less for a single dollar of earnings from the former than they are for a single dollar of earnings from the latter.
On Monday, investors buying News Corp. stock were paying the equivalent of $5.80 for every $1 of operating earnings that the combined company is expected to generate this year, according to Gould. That is 20 percent lower, or $1.50 less, than investors are paying for more pure play TV and film companies like CBS Corp. and Viacom Inc.
Do the math on News Corp.'s expected $6.6 billion in operating earnings this year, and that means the company is being valued $10 billion less than its TV and film rivals. Gould says the idea behind the split is to capture some of that $10 billion, and he thinks the company could do it. He is recommending that his investing clients buy the stock.
Associated Press Raphael Satter in London and Business Writer Bernard Condon in New York contributed to this report.
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