It seems that News Corporation ( NWSA - Analyst Report ) will finally have to bow before disgruntled shareholders, who from a long time have been pressing hard to sever the publishing business. Yesterday, the company confirmed that it is contemplating on splitting the company into two separate publicly traded companies, thereby giving shareholders a reason to cheer.

The stock price jumped 8.3% on the news to close at $21.76, the highest level achieved since 2007.

The diversified media conglomerate is mulling on spinning the newspapers, HarperCollins book publisher and education operations, and creating a much more profitable entity including Fox broadcast TV network, Fox News Channel and the 20th Century Fox movie studio, as reported by The Wall Street Journal, the company's flagship newspaper. Presumably, Murdoch’s family will spearhead both the companies.

We believe that the breakup would help News Corporation to lift its image, which was tainted due to the phone hacking scandal that resulted in the closure of the publication of ‘The News of the World’ and abstinence from acquiring the remaining 61% stake in the British Sky Broadcasting Group.

Further, there has been immense pressure from shareholders to divest the publishing arm which has been grappling with lower operating profit compared with the entertainment unit. The secular headwinds and the migration of advertisers to the Internet due to increasing online readership have been hurting the publishing business.

This was quite evident from a 19% decline in operating income to $130 million during the last reported quarter on account of a fall in advertising revenue at the Australian and U.K. newspapers, partly offset by gains from Dow Jones, HarperCollins and the integrated marketing services business.

On the contrary, operating income jumped 15% to $846 million at Cable Network Programming. Advertising revenue climbed 10% on the back of growth registered across FOX News and the National Geographic Channels. Filmed Entertainment operating income rose 10% to $272 million.

If News Corporation goes ahead and decides to split the business, it is obvious that the entertainment company with better prospects will enjoy greater chances of luring investors than the publishing entity, which in order to expand, would seek acquisitions and spread wings in the education industry.

In the past there have been instances when companies split into two separate entities in order to unlock hidden value. CBS Corporation ( CBS - Analyst Report ) was born out of Viacom Inc. ( VIAB - Analyst Report ) when the latter split into two publicly traded companies Viacom and CBS Corporation on December 31, 2005. Based in New York, Time Warner Cable Inc. ( TWC - Analyst Report ) formerly operated as a subsidiary of Time Warner Inc. ( TWX - Analyst Report ) . From March 12, 2009, Time Warner Cable started operating independently leaving Time Warner.

Currently, we have a long-term ‘Neutral’ recommendation on News Corporation. Moreover, the company holds a Zacks #3 Rank that translates into short-term ‘Hold’ rating.