With the closing of its acquisition of a 38.5% interest in DirecTV Group on the horizon, Liberty Media said that it will split its Liberty Capital tracking stock into two separate entities, a move that was widely expected on Wall Street and one that management said would further reduce the complexity of the company.
Once the DirecTV transaction closes – expected in September or October – that asset as well as three regional sports networks (Fox Sports Network Northwest, FSN Rocky Mountain and FSN Pittsburgh) and $588 million in cash will be housed within a new tracking stock called Liberty Entertainment.
Liberty Entertainment will also include its 100% interest in premium movie channel Starz Entertainment, Starz Media, its 50% stake in cable channel GSN, 53% interest in interactive gaming company FUN Technologies, 32% stake in wireless Internet service provider Wild Blue Communications and $550 million in exchangeable debt. Liberty Capital would continue as a tracking stock and would include Liberty’s minority interests in several media companies, its 89% stake in wireless location technology provider True Position, 11% stake in Hallmark Entertainment Investments and several other smaller media company stakes.
Liberty Interactive, the tracker that includes its 100% interests in cable shopping channel QVC and Provide Commerce, a 20% interest in Expedia and 24% stake in IAC/InterActiveCorp, will remain unchanged.
The splitting off of the DirecTV stake and the RSNs – which it will receive as part of a deal announced in December with News Corp. in exchange for Liberty’s 19% voting interest in the media giant – has been anticipated by at least one analyst (Citigroup’s Jason Bazinet) for weeks. In a July research report, Bazinet estimated that by separating out the DirecTV interest, Liberty may be freer to invest in the direct broadcast satellite giant, including spending money for a high-speed Internet service play to compete against cable operators or pile on additional debt to acquire 100% of DirecTV.
On a conference call with analysts, Liberty Media CEO Greg Maffei said that while Liberty Entertainment will have little debt – basically the $1 billion of debt attributed to DirecTV, against about $4 billion in cash flow – with the current state of the credit markets, it may not be the best time to borrow additional funds.
“Whether it’s the right time to go out and get that leverage and how you might want to use that leverage – are you using it for share repurchase, are you using it for combination, are you using it to buy other content assets – all of those are opportunities we think are interesting,” Maffei said. “But this might not be the optimal time in the next month to think about trying to go out and try to get a big yield out of an offering. But clearly most entities are considered underleveraged from what we would consider optimal.”