* Murdoch stays as CEO of entertainment, Carey as No. 2

* Murdoch: In no hurry to name publishing CEO

* Murdoch: Decision to split nothing to do with UK hacking

* Separation expected to close in 12 months

By Yinka Adegoke

June 28 (Reuters) - Rupert Murdoch's decision to become chief executive of a new, separate entertainment company split off from News Corp but not to head the new publishing business sparked speculation he was setting the stage for the return of his eldest son Lachlan to the company.

News Corp said on Thursday that its board had approved a plan for the $60 billion media conglomerate to be split into two publicly traded companies, publishing and entertainment, with the Murdoch family retaining control of both.

Analysts said that the separate publishing company, with some assets in Australian, lends credence to speculation over Lachlan Murdoch's return, given that it is widely known that he prefers his native Australia to the United States.

Should the break-up of the company be completed without the elder Murdoch or Lachlan in the chief executive role at the newspaper operation, it would mark the first time in News Corp's history that someone other than a Murdoch family member was in charge of that business.

But even if Lachlan did return or if someone else took the CEO role, Murdoch, who loves the newspaper business, has already said he would be an "active chairman" of the publishing unit.

"With Rupert Murdoch you can have the title on your business card, but you know who's really in charge," said Ken Doctor, a media analyst at Outsell. "He doesn't want to run it he just wants to tell them what to do."

In an interview on Thursday with Reuters, Murdoch, who will serve as chairman of both companies, said he would be pleased to have Lachlan back.

Lachlan Murdoch, who was deputy chief operating officer at News Corp, left the company in 2005 after clashes with senior executives. He has remained on the board but has been reluctant to return to the company's headquarters in New York.

"He's got his hands full with his own businesses at the moment, but as a father I hope he'll return. He spent his life at my knees as we built this company so we shall see," Murdoch told Reuters.

However, in an interview on News Corp's Fox Business Network on Thursday, Murdoch moved to dismiss some of the speculation, saying it was "highly unlikely" he would return to the company as a publishing executive.

Another likely contender to run the new publishing company is News Corp executive Joel Klein, a former New York City schools chancellor.

Meanwhile, Rupert Murdoch will remain CEO of the new, faster-growing entertainment company, with long-serving lieutenant Chase Carey remaining as chief operating officer.

But the executives jockeying for key roles at the family- controlled businesses under Murdoch and Carey is expected to be intense.

Company insiders are already raising questions about what roles Murdoch's children Elisabeth and James -- both senior entertainment executives -- will play within the new company and what that will mean for a succession plan to the 81-year-old patriarch.

James Murdoch, who has been embroiled in the UK phone hacking scandal from his previous role as chairman of News International, currently oversees the international TV business. He is also a director of the company. His older sister Elisabeth runs a News Corp-owned TV production company out of Los Angeles. Last year, she declined to join the board as the phone hacking scandal escalated.

Top Fox executives, including Peter Rice and Kevin Reilly, will also be expected to be fit into senior hierarchy at the entertainment business.

"I think it shows what a rich company we are to have so much talent," Murdoch told Reuters. He said the issue of succession will be addressed by the board. "This move does not affect succession thinking at all."


BREAKING UP 60-YEAR OLD COMPANY

Murdoch said his mind had been made up for some time on the decision to break up his 60-year-old company.

"It's a very big move and very big decision for me," he said on a conference call. It's a reversal from his long-held belief that News Corp's assets worked best as a cohesive whole.

The transaction is expected to take about 12 months to complete. News Corp shareholders will receive one share of common stock in both new companies for each of the same class of News Corp shares currently held.

Both of the new companies will maintain the current dual class share structure that gives the Murdoch family the largest block of voting shares.

The entertainment company will include News Corp's Fox broadcasting and cable networks, 20th Century Fox movie studios and pay-TV businesses in Europe and India.

The publishing company will include newspapers like The Wall Street Journal and Britain's The Sun, book publisher HarperCollins, an integrated marketing business as well as its fledgling digital education division.

Analysts and investors have been skeptical about whether the struggling publishing business could prosper as a standalone. Murdoch addressed the concerns in a memo Thursday to his staff, which was obtained by Reuters.

"Our publishing businesses are greatly undervalued by the skeptics. Through this transformation we will unleash their real potential," he said.

There has been mounting pressure on News Corp to get rid of its newspaper business after a phone-hacking scandal tainted its British papers and forced the company to drop its proposed acquisition of pay-TV group BSkyB.

Since the collapse of the BSkyB deal, News Corp has implemented a share buyback program totaling $10 billion. And Murdoch insisted the company has "moved on" from any thought of returning to the deal or making any major new investments in Britain anytime soon.

"There were billions and billions of dollars and Britain didn't want them and we've got good places to put them here (United States)," Murdoch told Fox Business News. "I'm much more bullish about America than I am about England."

Chief Financial Officer Dave Devoe said the buyback program will not be affected by the separation. News Corp shares have risen more than 43 percent since the program was implemented last July.

News Corp shares were down 1.4 percent at $22 in trading on the Nasdaq Thursday.

"This is very shareholder friendly. News Corp is a very complex stock," said Larry Haverty, a portfolio manager at Gabelli Multimedia Funds, which owns News Corp stock.

He said the stock will benefit from a reduction in the so-called 'Murdoch discount," which referred to Murdoch's reluctance to take any notice of shareholders desires.

Murdoch insisted the decision to separate the business had nothing to do with the British scandal.

"We're not doing this any way as a reaction to anything in Britain," Murdoch said.

In addition to the scandal, newspapers in particular, and publishing in general, has been badly hurt by the availability of free content on the Internet - leading to a drop in advertising revenue and circulation sales.

Murdoch has argued that consumers will pay for digital news particularly on devices like tablets and phones if it is not given away for free.

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  • Rupert Murdoch, Wendi Deng, Lachlan Murdoch

    News Corp. chairman Rupert Murdoch, left, his wife Wendi Deng and son Lachlan Murdoch leave the High Court in London after giving evidence to the Leveson inquiry, Thursday, April 26, 2012. (AP Photo/Sang Tan)

  • Rupert Murdoch, Wendi Deng

    News Corp. chairman Rupert Murdoch and his wife Wendi Deng leave the High Court in London after giving evidence to the Leveson inquiry, Thursday, April 26, 2012. (AP Photo/Sang Tan)

  • Rupert Murdoch

    FILE - In this Jan. 15, 2012 file photo Rupert Murdoch arrives at the 69th Annual Golden Globe Awards in Los Angeles. Murdoch’s News Corp., the global media conglomerate under fire for phone hacking and alleged bribery in Britain, posted a 47 percent increase in third-quarter net income thanks to strong performances at its U.S. pay-TV networks and movie studio (AP Photo/Matt Sayles, file)

  • Rupert Murdoch

    News Corp. chairman Rupert Murdoch arrives at the Allen & Company Sun Valley Conference in Sun Valley, Idaho, Friday, July 13, 2012. (AP Photo/Paul Sakuma)

  • The 20th Annual Sir Elton John Oscar Party - Los Angeles

    Wendi Murdoch arriving at the 84th Annual Academy Awards, held at the Kodak Theatre in Los Angeles, CA, USA on February 26, 2012. ()

  • A campaigner wearing a giant mask depicting News Corporation's chairman Rupert Murdoch burns the Leveson report while another wearing a mask depicting British Prime Minister David Cameron, sits tied to a chair during a protest, calling on MPs to back reform legislation to stop any one media organisation developing a stranglehold over the British media, outside the Queen Elizabeth II Conference Centre in London where Lord Justice Brian Leveson is to release his report into the culture and practices of the British press and his recommendations for future regulation to prevent phone hacking, data theft, bribery and other abuses, Thursday, Nov. 29, 2012. (AP Photo/Sang Tan)

  • Red Magazine Red Hot Women Awards - London

    Elisabeth Murdoch arrives for the annual Red's Hot Women Awards 2012 at One Marylbone, London.

  • Media mogul Rupert Murdoch, center, and his wife Wendi Deng, top, watch Andy Murray of Britain play Roger Federer of Switzerland during the men's singles final match at the All England Lawn Tennis Championships at Wimbledon, England, Sunday, July 8, 2012. (AP Photo/Paul Gilham, Pool)

  • James Murdoch, Lachlan Murdoch

    James Murdoch, left, son of Rupert Murdoch and deputy chief operating officer of News Corp., and Lachlan Murdoch, right, son of Rupert Murdoch and former executive with News Corp., arrive at the Allen & Company Sun Valley Conference in Sun Valley, Idaho, Wednesday, July 11, 2012. (AP Photo/Paul Sakuma)

  • James Murdoch

    James Murdoch, son of Rupert Murdoch and deputy chief operating officer of News Corp., arrives at the Allen & Company Sun Valley Conference in Sun Valley, Idaho, Wednesday, July 11, 2012. (AP Photo/Paul Sakuma)

  • Rupert Murdoch, Wendi Murdoch

    Media mogul Rupert Murdoch and his wife, Wendi, arrives at the Allen & Company Sun Valley Conference in Sun Valley, Idaho, Thursday, July 12, 2012. (AP Photo/Paul Sakuma)

  • Lachlan Murdoch

    Lachlan Murdoch, son of Rupert Murdoch and former executive with News Corp., arrives at the Allen & Company Sun Valley Conference in Sun Valley, Idaho, Thursday, July 12, 2012. (AP Photo/Paul Sakuma)

  • Rupert Murdoch, Wendi Murdoch

    Rupert Murdoch and his wife, Wendi, arrives at the Allen & Company Sun Valley Conference in Sun Valley, Idaho, Thursday, July 12, 2012. (AP Photo/Paul Sakuma)

  • Sergey Brin, Wendy Deng

    Google co-founder Sergey Brin shows his "Google Glasss" to Wendi Deng, Rupert Murdoch's wife, at the Allen & Company Sun Valley Conference in Sun Valley, Idaho, Thursday, July 12, 2012. (AP Photo/Paul Sakuma)

  • Lachlan Murdoch

    Lachlan Murdoch, son of Rupert Murdoch and former executive with News Corp., arrives at the Allen & Company Sun Valley Conference in Sun Valley, Idaho, Friday, July 13, 2012. (AP Photo/Paul Sakuma)

  • Rupert Murdoch, Michael Bloomberg

    From left, News Corporation CEO Rupert Murdoch, speaks as New York Mayor Michael Bloomberg looks on during a forum on The Economics and Politics of Immigration in Boston, Tuesday, Aug. 14, 2012. (AP Photo/Josh Reynolds)

  • Rupert Murdoch,

    News Corporation CEO Rupert Murdoch, speaks during a forum on The Economics and Politics of Immigration in Boston at which Murdoch and New York Mayor Michael Bloomberg spoke, Tuesday, Aug. 14, 2012. (AP Photo/Josh Reynolds)

  • Rupert Murdoch,

    News Corporation CEO Rupert Murdoch, speaks during a forum on The Economics and Politics of Immigration in Boston at which Murdoch and New York Mayor Michael Bloomberg spoke, Tuesday, Aug. 14, 2012. (AP Photo/Josh Reynolds)

  • Rupert Murdoch,

    News Corporation CEO Rupert Murdoch, listens to introductions during a forum on The Economics and Politics of Immigration in Boston at which Murdoch and New York Mayor Michael Bloomberg spoke, Tuesday, Aug. 14, 2012. (AP Photo/Josh Reynolds)

  • Rupert Murdoch, Michael Bloomberg

    From left, News Corporation CEO Rupert Murdoch, looks on as New York Mayor Michael Bloomberg speaks during a forum on The Economics and Politics of Immigration in Boston, Tuesday, Aug. 14, 2012. (AP Photo/Josh Reynolds)

  • James Murdoch Gives Evidence At The Leveson Inquiry

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  • James Murdoch, son of media mogul Rupert

    James Murdoch, son of media mogul Rupert Murdoch, arrives at London's High Court, on April 24, 2012, ahead of his appearance before the Leveson Inquiry. The Inquiry was set up after a phone hacking scandal led to the closure of the News of the World tabloid in 2011. Rupert Murdoch appears at the Inquiry on Wednesday and possibly Thursday. AFP PHOTO / LEON NEAL (Photo credit should read LEON NEAL/AFP/Getty Images)

  • Rupert Murdoch Returns To His Home Ahead Of His Appearance At the Leveson Inquiry

    LONDON, ENGLAND - APRIL 23: Rupert Murdoch, CEO of News Corporation arrives at his house, two days before he is due to give evidence to the Leveson Inquiry, on April 23, 2012 in London, England. This phase of the inquiry into the culture, practice and ethics of the press in the United Kingdom is looking at the owners of various media groups. The inquiry, which may take a year or more to complete, comes in the wake of the phone hacking scandal that saw the closure of The News of The World newspaper in 2011. (Photo by Matthew Lloyd/Getty Images)

  • Rupert Murdoch (C), Chairman and CEO of

    Rupert Murdoch (C), Chairman and CEO of News Corp. and John Witherow (R), Editor of the Sunday Times of London, leave the funeral of slain Times of London correspondent Marie Colvin, at St. Dominic's Catholic Church on March 12, 2012 in Oyster Bay, New York. Colvin was killed in Syria along with French photographer Remi Ochlik as the two were covering the violence in the city of Homs on February 22. AFP PHOTO/Stan HONDA (Photo credit should read STAN HONDA/AFP/Getty Images)

  • Rupert Murdoch (L), Chairman and CEO of

    Rupert Murdoch (L), Chairman and CEO of News Corp. and John Witherow (R), Editor of the Sunday Times of London, leave the funeral of slain Times of London correspondent Marie Colvin, at St. Dominic's Catholic Church on March 12, 2012 in Oyster Bay, New York. Colvin was killed in Syria along with French photographer Remi Ochlik as the two were covering the violence in the city of Homs on February 22. AFP PHOTO/Stan HONDA (Photo credit should read STAN HONDA/AFP/Getty Images)

  • The First Editions Of The Sun On Sunday Hit The Newstands

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  • The First Editions Of The Sun On Sunday Hit The Newstands

    BROXBOURNE, UNITED KINGDOM - FEBRUARY 25: Rupert Murdoch, Chairman and CEO of News Corporation, arrives to oversee the first editions of the 'The Sun On Sunday' newspaper coming off the priniting press on February 25, 2012 in Broxbourne, England. Around 3 million copies of 'The Sun On Sunday', the first ever Sunday edition of News International's daily tabloid newspaper 'The Sun', are due to go on sale on Sunday February 26, 2012. News Corporation CEO Rupert Murdoch, who has flown into the UK to oversee the launch, said he would be 'very happy' if sales of his new paper exceed two million copies and enjoyed similar success to the 'News Of The World', its defunct predecessor. (Photo by John Stillwell - WPA Pool/Getty Images)

  • Rupert Murdoch Sighting In London

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  • 69th Annual Golden Globe Awards - Arrivals

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  • Rupert Murdoch Delivers Keynote At The National Summit On Education Reform

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  • Rupert Murdoch Delivers Keynote At The National Summit On Education Reform

    SAN FRANCISCO, CA - OCTOBER 14: News Corp. CEO Rupert Murdoch pauses as he delivers a keynote address at the National Summit on Education Reform on October 14, 2011 in San Francisco, California. Rupert Murdoch was the keynote speaker at the two-day National Summit on Education Reform. (Photo by Justin Sullivan/Getty Images)

  • Occupy Wall Street Protestors March Down New York's Fifth Avenue

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  • The generval view shows newspapers in Me

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  • News Corporation Chief Rupert Murdoch re

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  • Leveson Inquiry

    Lachlan Murdoch leaving his father Rupert's home in Mayfair, central London as his brother James, gives evidence to the Leveson Inquiry into press standards.

  • Rupert Murdoch with Queen Elizabeth II in 1985

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  • Rupert Murdoch with Princess Diana

    Diana, Princess of Wales with Rupert Murdoch, proprietor of The Times, as she arrived at Hampton Court Palace to attend a gala evening to celebrate the newspaper's bicentenary.

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    Newspaper proprietor Rupert Murdoch holds copies of the Sun at his new high technology print works in Wapping, East London.

  • Thatcher papers on show

    BLACK AND WHITE ONLY. File photo dated 22/01/1981 of Rupert Murdoch at a press conference in London, discussing the future of The Times newspaper.

  • New Sunday Sun tabloid

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  • Margaret Thatcher, Rupert Murdoch

    FILE - In this Nov. 14, 1991, file photo, Margaret Thatcher accepts the United Cerebral Palsy of New York's 37th Annual Humanitarian Award in New York from Rupert Murdoch. (AP Photo/Mike Albans, File)