An initial public offering didn't end up unlocking the value of Fox Entertainment Group ( FOX), so now Rupert Murdoch's locking the entertainment outfit back up again.

News Corp. ( NWSA) on Monday set a tender offer for the 18% of Fox it doesn't own. The decision serves as another sobering reminder of how fallible companies can be when they start fiddling with their capital structure in a bid to increase their attractiveness to the market.

Sometimes the strategy just doesn't work -- at least for shareholders.

Yes, Fox's stock is trading higher than it was back in November 1998, when News Corp. made an initial public offering in the stock of its U.S. entertainment subsidiary. But Fox's stock hasn't done quite as well as parent News Corp.'s, or as well as shareholders expected in the optimistic times leading up to the offering.

It turns out that though investors value the clarity achieved by deals like the Fox IPO, other factors often intervene. In the case of Fox, the problem could very well have been the suspicion -- justified or not -- that in any transaction between Fox and News Corp., the Rupert Murdoch mother ship would come out ahead on the deal.

Maybe it had something to do with News Corp.'s 97% voting power in Fox, or in News Corp.'s overwhelming domination of the Fox board, or News Corp.'s marionette-puppet control of the deal in which Fox acquired a major stake in DirecTV ( DTV). Maybe Wall Streeters are just unnaturally cynical.

On Monday, News Corp.'s Class A nonvoting shares fell 58 cents to $17.07, while the NWS voting shares fell 39 cents to $17.84. Fox's stock rose $2.77 to $33.99.

High Hopes

Leading up to the IPO, confidence was high in some parts that an offering of the Fox assets -- placing them on their own pedestal and boosting their visibility -- would result in higher-valued pure-plays and in turn boost valuations of the parent company.

As News Corp. noted in a press release announcing plans for the IPO, "News Corporation believes that its decision to form the Fox Group and sell shares in a public offering will enable the investment community to better value the various entertainment assets and businesses which News Corporation owns."

For some 20-20 hindsight into how that strategy might pan out, consider this passage from The Wall Street Journal's June 1998 coverage of that announcement. "Entertainment companies ... have considered spinning off or creating tracking stocks of certain businesses in an effort to increase their share price and 'unlock' hidden values," noted the Journal. The examples that the newspaper cited? Viacom's ( VIAB) intention to offer part of its Blockbuster ( BBI) video subsidiary, and AT&T's ( T) plans to issue three different tracking stocks. When those plans eventually reached fruition, the unlocked value turned out to be not as great as the security measures implied.

Not that Fox turned out to be valueless, but its growth hasn't exactly wowed anyone. The stock, which went public at $22.50 a share, closed Friday at $31.22 a share, up 39% over the past six years. Compare that to shares in News Corp., specifically the nonvoting Class A shares. On Friday, they closed at $17.65, up from a split-adjusted $12.50, according to Bloomberg. That's a 41% gain.

So much for the unlocked value.

While the theory back in 1998 was that U.S. investors wanted a U.S. stock out of News Corp. -- which at the time was domiciled in Australia -- Fox appeared to fall victim to other factors, such as belief, explored in a prior TheStreet.com article, that though Fox might have value, public shareholders would have difficulty getting in line ahead of News Corp. in order to extricate that value.

With News Corp. having relocated to the U.S. last year, the demand for a separate U.S. investment vehicle appears to have evaporated.

After talking about the advantages of spinning Fox off six years ago, News Corp. and analysts were talking about the advantage of bringing Fox back into the fold.

The transaction doesn't create an incremental strategic benefit, notes JBHanauer analyst David Joyce, "but it does simplify the capital structure and therefore the investment story, which could make it easier for investors to understand, potentially translating into modest incremental multiple expansion over time." (Joyce has a market perform rating on News Corp.) Adds Joyce, "In addition to reducing business model complexity for the investment community, this transaction will allow easier allocation of resources throughout the entire company and also enable easier strategic transactions in the future."

So simplification is the new mantra. Of course, what that means for other companies is unclear. After all, the Barry Diller-led IAC/InterActiveCorp ( IACI) put a lot of effort in buying back publicly traded shares in majority-held subsidiaries like Expedia and Ticketmaster -- just the way that News Corp. is buying back the public stub of Fox.

But now, after consolidating, IAC is splitting off the travel businesses. So go figure.