In typical complicated fashion, cable legend John Malone’s Liberty Interactive will purchase Alaskan cable and telephone company General Communication Inc. in a deal worth $1.1 billion.
GCI has about 108,000 cable subscribers in Alaska and also is the state’s largest telephone and wireless company. The deal is expected to close in the first quarter of 2018. J.P. Morgan is serving as financial advisor and Baker Botts LLP is serving as legal advisor to Liberty Interactive.
The deal is a complicated one -- Liberty Interactive will buy GCI, but in a tax-free transaction will spin the cable company out to yet another Liberty tracking stock, Liberty Ventures. The deal will benefit Liberty Interactive by transforming it into an asset-based equity which would allow it to be included in major stock indices, and it creates a more robust currency for other deals and for management compensation. For GCI, it gets a big-pocketed backer and the resources to possibly roll up more cable companies across the country. It also is a bit of a homecoming for the Alaskan cabler, which was once part of Liberty’s former parent Tele-Communication Inc. (TCI)
GCI stock, traded under the symbol GCNMA, soared on news of the deal, closing up 62.5% ($12.84 per share) to $33.40 on Tuesday. Liberty Interactive shares closed up nearly 2.2% (44 cents each) Tuesday to $20.41 per share.
This is the second time Liberty has set its sights on a lightly traded small cable operator. In 2013, Liberty Media purchased a 27% interest in Charter Communications for about $95.50 per share, which served to be a major catalyst for that stock. Charter, which completed its purchase of Time Warner Cable in May, was priced at $331.69 per share in early Tuesday trading.
“This transaction with Liberty Interactive brings GCI back full circle, as GCI was part of TCI until 1986. We couldn’t think of a better owner, and look forward to being the largest operating asset within GCI Liberty,” said Ron Duncan, GCI President and CEO in a statement. “We will continue to run the company with our focus on providing the best value for Alaska customers, offering opportunities for our employees and investing wisely in the Alaska market.”
According to the deal, Liberty Interactive, which trades under the QVC Group name (NASDAQ: QVCA) will buy GCI through a reorganization in which certain Liberty Ventures Group assets and liabilities will be contributed to GCI in exchange for a controlling interest in the Alaskan distributor. Liberty Interactive will then conduct a tax-free separation of its controlling interest in the combined company, to be named GCI Liberty, to the shareholders of Liberty Ventures. The result will be two asset-based stocks -- QVC Group (the former Liberty Interactive) and GCI Liberty (the former Liberty Ventures).
“We are pleased to announce this transaction with GCI,” said Liberty Interactive CEO Greg Maffei in a statement, Liberty Interactive President and CEO. “GCI is the largest communications provider in Alaska, generates solid cash flow with upside potential and is a strong fit with the largest businesses in Liberty Ventures. This transaction will ultimately create a standalone Liberty Ventures, reducing the tracking stock discount and enabling an asset-backed QVC Group.”
Shareholders of GCI will receive total consideration of $32.50 per share; including $27.50 per share in GCI Liberty Class A common stock and $5.00 in newly issued Series A preferred shares, based on a Liberty Ventures reference price of $43.65. The transaction represents an undiluted enterprise value for GCI of $2.68 billion and undiluted equity value of $1.12 billion.