Under pact, TCI, Diller may share Silver King control

Cable giant Tele-Communications Inc. will be able to share control of Barry Diner’s new network vehicle Silver King Communications if federal law changes to allow cabler ownership of broadcast properties, according to documents filed Aug. 29 with the Securities & Exchange Commission.

But the deal is structured to ensure that in such an event Diller would retain management control over the company. Only on major issues such as expensive acquisitions or Diller’s employment would TCI have final say.

Diller and Silver King announced Aug. 25 that the former chairman of QVC Inc. and Fox Inc. would become chairman/CEO of Silver King and would buy stock and options to take his stake to 20%. He would get control through a side deal with TCI’s programming affiliate Liberty Media, which has options over Silver King stock with voting equity of 70%.

Liberty plans to exercise the options but transfer control of the votes attached to the stock to Diller to around get the cross-ownership ban on cablers owning broadcast stations.

The SEC filing reveals that Diller is getting a rich deal out of Silver King. He is putting up only $5 million in cash for his initial purchase of a 6% stake in Silver King, although the purchase price of the stake is about $10 million.

Diller is getting a loan of $4.9 million to cover the outstanding amount, and while the loan has to be repaid by August 1997, a separate clause in the pact guarantees him a total of $4.9 million in bonuses over the next two years.

In addition, Silver King has agreed to put up $1 million to cover any tax expenses Diller has to pay under the agreement. Diller has options to buy another 1.89 million shares for $42.7 million, but the options will become gradually exercisable over the next four years, at a fixed price of $22,625 each. This stock would give Diller 26% of Silver King.

These shares are not super-voting shares like those subject to the option owned by Liberty. To get around the cross-ownership ban, Diller and Liberty are to create a joint venture that will hold the super-voting shares, thereby giving Diller effective control of this stock.

But the agreement between Diller and Liberty allows Liberty to assume ownership of the super-voting stock if the cross-ownership ban on cablers and broadcasters is lifted.

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