Liberty Plans 'Hard Spin' on Stock


Liberty Media said last Wednesday that its board of directors has authorized a “hard spin” of its Liberty Entertainment tracking stock, a move that will convert the tracker into a separately traded public entity backed by hard assets, including Liberty Media's 50% interest in DirecTV.

In a statement Wednesday, Liberty Media said its board has authorized the development of a plan to distribute to holders of Liberty Entertainment shares of a subsidiary called Liberty Entertainment Inc. and is intended to be tax-free to stockholders.

“We believe converting the Liberty Entertainment tracking stock to an asset-backed security will create a stronger currency and allow greater flexibility to pursue our strategic objectives,” Liberty Media CEO Greg Maffei said in a statement.

There has been speculation for months that Liberty would attempt to consolidate its DirecTV interest in a separate security. And at the Deutsche Bank Media & Telecommunications conference in New York in June, DirecTV chief financial officer Patrick Doyle said that a Liberty Entertainment spin could be the a vehicle to do that.

“Certainly one of the scenarios that has been discussed is that Liberty Entertainment would spin out and merge with DirecTV, or a combination of things,” Doyle said in June.

If the split goes as planned, Liberty Entertainment will include the 50% interest in DirecTV; 100% of Starz Entertainment, FUN Technologies and its two regional sports networks, Liberty Sports Holdings LLC; 50% of cable network GSN; and 37% of WildBlue Communications.

In a research note, JP Morgan Securities analyst Bryan Goldberg called the combination a possible first step toward a full consolidation of DirecTV into the Liberty Entertainment entity. “In our view, a hard spin of [Liberty Entertainment] should theoretically improve [Liberty Entertainment] valuation, making a potential [DirecTV] transaction less dilutive to Liberty shareholders,” Goldberg wrote in a research note. “Expect a tax-free distribution to [Liberty Entertainment] shareholders within three to four months.”

A DirecTV consolidation would likely involve a stock swap — exchanging shares of DirecTV for the new Liberty Entertainment — making Liberty Entertainment an asset-backed security was essential, wrote Collins Stewart media analyst Tom Eagan.

Liberty Entertainment shares rose 41 cents (1.5%) to $27.53 per share last Wednesday.