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Malone Not Selling Shares Back to News Corp.

3/29/2005 4:31 PM Eastern

New York -- Liberty Media Corp. chairman John Malone disappointed a few investment bankers Tuesday when he told an audience at a industry conference that he would prefer not to dispose of his 17% voting interest in News Corp. in a cash-rich split-off.

Most analysts have anticipated that Malone -- who boosted his voting stake in News Corp. late last year from 9% to 17% by swapping nonvoting shares with Merrill Lynch International -- would sell the voting shares back to News Corp. for cash and a small operating asset.

Liberty has used the cash-rich split-off structure in the past, and it seemed to most to be the most tax-efficient way for both Liberty and News Corp. to do a deal.

But at the Banc of America Securities Media Telecommunications & Entertainment conference here Tuesday, Malone said he would like to take another route.

“I’m less interested in getting redeemed out in a cash-rich [spin] with a set of assets that we may or may not have interest in or have much growth potential,” Malone said. “I’d prefer to hold the position indefinitely and enhance the position or, alternatively, find a way to distribute the position directly to Liberty shareholders.”

News Corp. chairman Rupert Murdoch -- who was reportedly incensed that Malone increased his voting stake in the media giant -- has said that he would not part with any assets News Corp. considers to be essential. Some analysts have speculated that either National Geographic Channel or Fox Movie Channel could be transferred to Liberty in a cash-rich spin.

“My optimum outcome would be to deliver [nonvoting] News Corp. stock into the hands of Liberty shareholders tax-free and deliver the voting shares into the hands of the Murdoch family tax-efficiently,” Malone added. “If I could pull that off, Rupert would build a statue of me.”

Malone noted that he is not opposed to a cash-rich split-off -- just that he doesn’t believe News Corp. would part with an asset Liberty would be interested in. He added that time is running out for the ability to do a cash-rich spin -- changes in the federal tax laws which would eliminate that loophole are expected to take effect Oct. 1

“The timing would have to be quick and the generosity from News Corp. would have to be compelling,” Malone said. “Rupert’s a great guy, but I’ve never found him to have compelling generosity.”

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