Liberty Deal Drains DirecTV of Upside


Banc of America Securities analyst Doug Shapiro lowered his rating on DirecTV Group to “neutral” from “buy” last week.

The reason: Shapiro thinks that despite the healthy run-up in the stock in 2006, the announcement of its sale to Liberty Media in late December essentially exhausted the shares’ upside.

DirecTV’s stock price rose more than 70% ($10.56) last year, starting at $14.38 on Jan. 3 and ending at $24.94 on Dec. 29.

In a report, Shapiro said the rise in price was mainly on speculation in the later part of the year that the satellite giant would be used as deal fodder between current owner News Corp. and Liberty. Now that the deal has been announced, Shapiro expects DirecTV shares to pull back a bit at least until the transaction is closed, expected sometime in the first half of 2007.

“We think a large buyback or special dividend is probable after the swap closes in six months, but with a 30%-plus move since deal speculation arose, these are partially priced in,” Shapiro wrote.

Another concern: Will DirecTV be able to offer a sufficient high-speed data product, even with new owners?

If not, that could prove troublesome, as cable operators like Charter Communications and Mediacom Communications continue to push a triple play bundle of voice, data and video into smaller secondary markets, a DirecTV stronghold.

DirecTV’s share price closed at $25 on Jan. 4.