Fox Pulls In $2.8 Billion in Unexpectedly Strong IPO

Buoyed by stronger-than-expected demand for its stock, the entertainment and sports arm of Rupert Murdoch’s media empire raised $2.8 billion on Wall Street on Tuesday in the third-largest initial public offering in U.S. history.

Fox Entertainment Group Inc., part of Murdoch’s News Corp. that owns the 20th Century Fox studio, the Fox TV network and the Dodgers, sold 124.8 million shares, or an 18.6% stake, at $22.50 each.

In first announcing its plans for an offering last June, News Corp. said that it might sell as much as a 20% stake in Fox. That estimate was scaled back to 13.4%, or 85 million shares, in October amid the market chaos that nearly torpedoed the stock offering altogether.

Fox’s offering was the largest ever by a U.S. media company. Trading in the stock is expected to start today.

Tuesday’s unexpectedly strong sale of Fox’s Class A common shares comes amid increased investor appetite for stock from stronger, established companies because of uncertainties about smaller, riskier initial public offerings. Another established company, oil giant Conoco Inc., recently raised $4.4 billion in stock as part of a spinoff by DuPont Co. of part of its holdings.

The price for Fox’s stock was in line with the range of estimates of $21 to $24 a share.

Murdoch plans to use the proceeds to pay down debt and to buy back some preferred stock, hoping to bolster’s company’s finances so that it is prepared to ride out any future global economic problems as well as position the company to take advantage of acquisition opportunities.

Murdoch also is hoping that spinning off a portion of his entertainment division will boost the price of News Corp.’s stock, which he feels is undervalued by investors and does not reflect the true value of the company’s holdings.

On Monday, Fox disclosed that net income for its entertainment units doubled in its fiscal first quarter to $57 million, or 10 cents a share, and that it posted a 64% increase in operating income, to $202 million. Revenue jumped 22% to $1.8 billion. Still, profit margins remain thin as with most entertainment companies because of high costs and increasing competition.

Fox’s movie studio has turned in a strong year, with such hits as “There’s Something About Mary” and “Dr. Dolittle.” Fox is expected to soon benefit from international video sales of “Titanic,” and next year will release the first of George Lucas’ highly anticipated “prequels” to his lucrative series of “Star Wars” films.

Fox’s network is off to a soft year, although the company’s ratings remain relatively strong with young male viewers. Fox’s TV production remains healthy, with such shows as “Ally McBeal” and “Dharma and Greg.”

Fox Entertainment also includes 22 TV stations, and the Fox News Channel.

Earlier this year, Fox bought the Dodgers for $311 million from Peter O’Malley and his sister, Terry Seidler. It also has a stake in the new Staples Arena in Los Angeles.