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In order to bolster its position in regional sports television business, News Corporation (NWSA - Analyst Report) recently entered into a deal to acquire 49% stake in the Yankees Entertainment and Sports Network (YES). The agreement also provides an option to the diversified media conglomerate to increase its stake up to 80% after three years.

However, News Corporation did not comment on the financial details of the transaction that would result in the reduction of ownership interest of Yankee Global Enterprises, Goldman Sachs and other investors in the YES Network. YES also confirmed that Yankees baseball will be aired on its network through 2042.

News Corporation believes that the acquisition would help enhance its portfolio of regional sports channels. We believe that the buyout will strengthen the company’s Fox Sports Media Group position in the lucrative sports entertainment business, and would help woo advertisers, who are more interested in live telecast of sports in order to reach mass viewers. On this front, the company faces stiff competition from Walt Disney Company’s (DIS - Analyst Report) sports coverage network, ESPN.

Fox Sports Media Group currently has 20 U.S. regional sports networks in its kitty. Commenced in 2002, YES broadcasts live coverage of New York Yankees baseball, Brooklyn Nets basketball and other sports events.

News Corporation hit the headlines when it decided to split into two separate publicly traded publishing and media and entertainment entities. 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 Publishing Company will comprise publishing businesses, education unit and the integrated marketing services business. On the other hand, Entertainment Company will include cable and television assets, filmed entertainment, and direct satellite broadcasting businesses.

We believe that the split will 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.

News Corporation recently reported first-quarter 2013 earnings of 43 cents a share that beat the Zacks Consensus Estimate of 37 cents, and rose 34% from 32 cents earned in the prior-year quarter on the back of double-digit growth across Cable Networks.

Currently, we have a long-term ‘Neutral’ recommendation on the stock. Moreover, News Corporation, which competes with Time Warner Inc. (TWX - Analyst Report), holds a Zacks #3 Rank that translates into a short-term ‘Hold’ rating.

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