Malone to Take Over DirecTV

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New York -- John Malone’s Liberty Media reached a deal with News Corp. that will result in Liberty taking control of News Corp.’s 39% stake in DirecTV, The New York Times reported Wednesday night.

The deal -- which would see cable pioneer and former Tele-Communications Inc. CEO Malone end up with one of the most powerful U.S. pay TV providers -- would see News Corp. retire Liberty’s 19% voting stake in News Corp., the Times reported.

Rupert Murdoch’s News Corp. would sell Liberty’s stake in DirecTV in exchange for the 39% stake in News Corp., cash and other assets valued at $11 billion, the Times said, citing unnamed sources.

Liberty CEO Greg Maffei offered no news Wednesday on a possible time frame for swapping its interest in News Corp. voting stock for News Corp.’s stake in DirecTV Group, but he did provide some insight at an industry conference here on why Liberty is interested in the satellite giant.

Talks have been going on for months between Liberty and News Corp. regarding swapping Liberty’s 19% voting interest in News Corp. stock for DirecTV. Earlier this week at the Credit Suisse Media & Telecom Week conference, News Corp. chief operating officer Peter Chernin said talks between the parties continue.

While Maffei almost confirmed Chernin’s comment -- he said he would “let Peter do the talking for everybody: That seems to be News Corp.’s specialty” -- the Liberty chief added that gaining access to a strong distributor is one of the motivations for its interest in the direct-broadcast satellite giant.

Liberty was originally formed as the programming arm of TCI, once the largest cable operators in the country with about 14 million subscribers. Malone sold TCI in 1999 to AT&T, retaining control of Liberty. AT&T sold its cable unit, AT&T Broadband, to Comcast in 2002.

DirecTV, with about 15 million customers, is the largest DBS service provider in the country. News Corp. owns a 39% controlling stake in the company.

“[DirecTV] adds value potentially to the other elements in the Liberty portfolio,” Maffei said at the conference. “Today we have a host of content assets that don’t have the distribution muscle we used to have. Obviously, Liberty got created on the back of TCI’s distribution muscle. John Malone was smart enough to see that having that distribution asset would be a great way to have a front-and-center seat in the construction of content assets and a way to make sure your content assets had good and strong distribution. Since the sale of TCI, we have tried to protect those assets as much as possible, but we really haven’t had the ability to have an ongoing distribution arm to help do that. DirecTV could help in that process.”

Maffei added that the structure of the deal -- a cash-rich split-off -- would also lessen Liberty’s tax burden. He estimated that Liberty could avoid “literally billions of dollars” in taxes through the tax-rich structure.

And Liberty would still receive that tax benefit if it reduced its DirecTV stake to as low as 25%, which opens up the door to selling stock in order to raise money for other initiatives, possibly a broadband play.

DirecTV also has low net debt -- about $1 billion -- meaning that Liberty could significantly increase leverage for broadband or other initiatives.

But Maffei demurred when asked whether DirecTV would need that leverage to build out a broadband offering.

“It largely depends on what broadband solution they had,” he said. “Are they in some form of partnership with an established player? Are they planning their own build-out? Are they really going to own that two-way distribution asset? Are they looking at other forms of partnerships with other players? I don’t think we would want to commit every last dollar, but I think we’ve got some flexibility.”

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