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Liberty, News Corp. Size Up Swap

6/16/2006 8:00 PM Eastern

Liberty Media Corp. could be close to swapping at least a portion of its 18% voting interest in News Corp., possibly in exchange for television stations owned by the media giant.

Liberty, which raised eyebrows in late 2004 when it exchanged some of its nonvoting News Corp. shares for voting shares in the company, has been working for the better part of a year to swap the stock for a News Corp. operating asset. While several attempts to do so have fallen through, a published report indicates that the station deal could happen within weeks.

According to the June 12 edition of Financial Times, discussions between Liberty and News Corp. were in the “decisive stage.” This is spurred in part by the belief that News Corp.’s long-standing request to transfer licenses for the stations to the corporate entity from its chairman, Rupert Murdoch, may reach resolution soon, as well as the recent rise in News Corp.’s stock price.

Murdoch, a U.S. citizen, personally held the licenses for the stations because News Corp., then based in Australia, was prohibited by U.S. law from owning them.

But with News Corp.’s transfer of its base to New York more than a year ago, that prohibition is moot.

Liberty’s voting stake in News Corp. — second only to that of the Murdoch family — has also increased in value. News Corp. shares are up about 20% this year.

“We have had discussions with News Corp. about them selling an asset to Liberty [in exchange for the shares], which is more attractive for Liberty following the recent rise in News Corp.’s share price,” Liberty CEO Greg Maffei told the Financial Times. “There are no guarantees a deal will get done this time, but there appears to be a confluence of events which could make it happen.”

Liberty spokesman John Orr declined to comment. News Corp. spokesman Andrew Butcher did not return calls for comment.

Liberty’s News Corp. holdings are valued at about $10 billion, of which about $3 billion is in voting stock, according to UBS media analyst Aryeh Bourkoff. Bourkoff estimated that the 35 stations are worth about $9 billion.

The bulk of that $9 billion in value is likely tied to the larger stations in the group, which wouldn’t be included in a deal. As a result, any potential transaction with News Corp. would probably involve a large amount of cash.

“I think it makes a lot of sense,” Bourkoff said of the possible swap. “It’s basically a stock buyback for an asset that is underperforming. It could be accretive to News Corp. because they are lowering share count and it clears up an overhang on the stock.”

News Corp. had asked the Federal Communications Commission to transfer the station licenses late last year. However, the FCC, which until last month was operating short one commissioner, hasn’t moved on the transfer yet. Since the commission has recently filled that remaining spot — Robert McDowell was sworn in on June 1 — it could move forward with the transfer in the next several weeks.

FCC spokeswoman Rebecca Fisher said News Corp. applied for the license transfers at the end of last year. She would not speculate on when the commission would act.

At Liberty’s annual investor conference in May, chairman John Malone expressed interest in swapping his stake in News Corp. stock for stations and cash, but said the only roadblock was Murdoch’s ownership of the licenses. While the News Corp. stations include properties in such large markets as New York, Chicago and Los Angeles, Malone said he would be satisfied with stations in smaller markets.

That could mean that Liberty could eventually control stations in markets like Greensboro, N.C.; Memphis, Tenn.; Austin, Texas; Birmingham, Ala., or Ocala, Fla.

March