Liberty Unveils DirecTV Plans


After months of speculation, Liberty Media has finally pulled the trigger on a deal to simplify its 54% interest in satellite-TV giant DirecTV and its Liberty Entertainment tracking stock, announcing last week that it will create a new company to house those interests along with some programming and regional sports network assets.

As part of the agreement, the new company (also to be called Liberty Entertainment) will include the DirecTV interest, Liberty's regional sports networks — FSN Pittsburgh, FSN Rocky Mountain, and FSN Northwest — a 65% interest in cable network GSN and FUN Technologies, $30 million in cash and $2 billion in debt. That entity will later be merged with DirecTV, at which time it will assume the DirecTV name.

Liberty Entertainment's remaining assets — premium network Starz Entertainment, WildBlue, PicksPal, Fanball and about $650 million in cash — will be renamed Liberty Starz.

“We view this as a defining transaction for DirecTV,” said Chase Carey, CEO of the satellite-TV provider, on a conference call with investors.

The deal also simplifies DirecTV's corporate structure and could allow the satellite giant to make a bigger push into content.

Carey said that the company sees new opportunities to develop the RSN businesses.

“Given our focus on sports, the importance of sports for us, we really do believe and are excited about the opportunity to work with them and build that business,” Carey said, adding that GSN also presents “tremendous upside.”

He stressed that other content deals DirecTV will consider in the future will be “opportunistic. Content is always pretty pricey … most of the content assets we've seen would not give us the upside we would want,” Carey said.

Liberty Media has been talking about consolidating its interest in DirecTV for months — it first broached the transaction in September 2008, part of an effort to transform the tracker into an asset-based security. In the past, the main concern had been whether Liberty chairman John Malone would accept a deal that would dilute his voting control.

According to the deal, Malone's voting interest, currently at about 33%, will fall to 24% of the new entity's voting power. Malone has also agreed to vote his shares in support of the transaction and to certain limitations on his rights to sell or acquire shares.

But typical for any transaction involving Malone, the deal is a complicated one.

According to the deal, Liberty Entertainment will first be split off — holders of the tracker will receive 0.9 shares of Liberty Entertainment common stock and retain 0.1 shares of Liberty Starz stock. Liberty Entertainment and DirecTV will then merge, with the combined business called DirecTV.

The companies expect the split-off to occur before the mergers, which are currently expected to be completed in the fourth quarter of 2009.

In February 2008, Liberty completed its swap of 16.3% of News Corp. stock for that media giant's controlling interest in DirecTV, the three RSNs and $465 million in cash. At the time, the deal was valued at about $10.3 billion.

That's [Liberty] Entertainment
Liberty Media will restructure its Liberty Entertainment tracking stock, combining its 54% interest in DirecTV with three regional sports networks and other assets and then later merging it with DirecTV. Its remaining assets will be rechristened as Liberty Starz. How the entities will shake out after the transactions are complete in the fourth quarter:

Liberty Entertainment: Liberty's 54% interest in DirecTV; Liberty Sports Holdings (FSN Pittsburgh, FSN Rocky Mountain and FSN Northwest); 65% interest in Game Show Network; FUN Technologies; $30 million in cash; $2 billion in debt.

Liberty Starz: Starz Entertainment; 37% interest in WildBlue Communications; PicksPal; Fanball; and $650 million in cash.