News Corp’s May 2025 Follow-On Offering: A Growth Catalyst or a Shareholder Dilution Warning?

As News Corp (NWS) prepares to navigate the complexities of its May 2025 follow-on offering—a dual strategy involving a $750 million senior note issuance (via Form S-3) and an IPO of its AI-driven subsidiary—investors face a critical question: Is this a bold move to fuel innovation, or a desperate bid to secure liquidity? To answer this, we must dissect the company’s capital allocation priorities, valuation dynamics, and management’s track record.

The Strategic Play: Debt Flexibility vs. Equity Dilution

The May 10 Form S-3 filing for $750 million in senior unsecured notes is a critical first layer. Unlike equity offerings, debt issuance avoids immediate shareholder dilution, instead prioritizing flexibility for strategic moves:
- Debt Reduction: News Corp’s net debt stood at $2.3 billion as of Q3 2025 (down from $2.8 billion in 2024), but further deleveraging could improve its investment-grade credit rating.
- Acquisition Power: With stagnant growth in traditional media, the funds could target AI startups or content platforms to bolster its digital wings (e.g., Dow Jones’s Risk & Compliance division, which grew 11% in Q3).

Meanwhile, the June 5 Form S-1 filing for its AI subsidiary—News Corp Global Tech Inc.—aims to raise $250 million via an IPO. This move signals a bold pivot toward AI-driven content creation and analytics, sectors where competitors like Adobe and Alphabet are aggressively expanding. The subsidiary’s projected $50 million revenue run rate by 2026 hinges on rapid scaling.

Valuation: Is the Market Pricing in Optimism or Overconfidence?

News Corp’s current valuation multiples—12x EV/EBITDA and 15x P/E—trail peers like Disney (16x EV/EBITDA) but align with its more asset-light, subscription-driven segments (e.g., WSJ’s 90% digital subscription base). However, the AI subsidiary’s IPO at a $2.5 billion implied valuation (based on $25/share pricing) requires scrutiny:
- Comparable Risks: AI-first firms like Palantir (PLTR) trade at 10x sales but face scalability questions. News Corp’s subsidiary, with minimal current revenue, may overvalue its IP unless it secures enterprise clients swiftly.
- Shareholder Impact: The S-3’s debt issuance avoids dilution, but the S-1’s equity offering could pressure existing shareholders if the subsidiary underperforms.

Management’s Track Record: Divestiture Genius or Growth Stagnation?

News Corp’s leadership has a proven knack for capital reallocation, exemplified by the Foxtel sale in April 2025. The $592 million cash infusion and DAZN equity stake strengthened its balance sheet while exiting non-core assets. Yet, its core media divisions—like the struggling News Media segment (down 8% in revenue)—highlight reliance on legacy businesses.

The real test lies in execution:
- Digital Dominance: Dow Jones and REA Group’s 6% revenue growth in Q3 2025 suggests resilience, but can these units sustain momentum?
- AI Execution: Will the new subsidiary’s tools (e.g., personalized ad tech, AI-powered journalism) generate recurring revenue or become a costly distraction?

The Bottom Line: Buy the Vision, Bet on the Transition

Investors face a binary choice:
- Bull Case: The offerings fund a seamless pivot to AI-driven content, unlocking undervalued assets. With $539 million in free cash flow (9M 2025) and a 22% EBITDA margin in News Media, the company has the liquidity to experiment.
- Bear Case: Over-leverage on debt and overvaluation of AI could backfire if macro risks (e.g., ad market softness, AI competition) materialize.

Recommendation:
For aggressive investors, this is a buy. The dual strategy balances debt flexibility with high-growth bets, and the company’s Q3 results—especially in digital subscriptions and EBITDA margins—signal operational discipline. However, wait for the AI subsidiary’s IPO pricing clarity before committing. If the valuation multiples compress post-IPO, it could be a golden entry point.

For cautious investors, focus on sector comparables and execution metrics: Track the subsidiary’s client wins (e.g., enterprise contracts) and monitor whether the Foxtel proceeds are deployed into accretive acquisitions. News Corp’s move isn’t just about capital—it’s about proving it can thrive in a media landscape where AI is the new printing press.

Act fast, but analyze faster: The May 2025 offering isn’t a red flag—it’s a call to arms for the future of media.

Data as of May 2025. Past performance does not guarantee future results.