Discovery, Newhouse In Talks
Governance Issues Still Remain
By Mike Farrell -- Multichannel News, 9/24/2007 4:51:00 AM
Discovery Holding Co. (DISCA) confirmed an analyst’s report last Friday that it was in negotiations with one of its largest shareholders to exchange its 33% interest in a holding company that controls the group of networks for Discovery Holding stock.
In a filing with the Securities and Exchange Commission Friday, Discovery said it was in “preliminary discussions” with Advance/Newhouse Programming Partners “concerning an exchange of Advance/Newhouse’s interest in Discovery Communications Holding LLC for shares of DHC.”
In the filing, DHC said that significant issues still remain involving governance and valuation of the stake. Advance/Newhouse is the second largest shareholder of Discovery Holding LLC – Liberty Media is the largest with a 66% stake.
The filing confirmed a report by Pali Research media analyst Richard Greenfield on Friday, which stated that Liberty and Advance/Newhouse were in discussions about acquiring the latter’s 33% interest. According to Greenfield, Liberty chairman John Malone said that term sheets were being exchanged between Liberty and Advance/Newhouse, but that Newhouse wanted to retain its blocking rights regarding management hires and other operational issues.
Discovery said it was making the filing in response to Greenfield’s report.
This isn’t the first time that Greenfield has predicted a Discovery deal. In June the analyst predicted a Discovery buyout of Newhouse, saying then that “while the timing of a consolidation of Newhouse's stake in DCI is uncertain, we sense that the timing could be in the near future.”
In May Cox Communications sold its 25% interest in Discovery to Liberty and Advance/Newhouse — increasing both companies' stakes in DCI to 66% and 33%, respectively — for $1.3 billion in cash, the Travel Channel and a related Web site.
“Governance issues” are the primary holdup to the deal, at this point, Greenfield said in his most recent report. He predicted that folding Newhouse's ownership into DISCA will be at “market values,” with Newhouse simply wanting to maintain its voting rights within Discovery regarding management hires and other operational issues.
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