Investors unhappy about TCI transfer of Starz! to Liberty

NEW YORK — Tele-Communications Inc. will transfer control of the Starz! movie channel to its programming affiliate Liberty Media, it was announced Thursday, as part of a $400 million deal.

But the sale, part of a larger reorganization of Liberty’s premium movie network interests, appeared much more lucrative for TCI than Liberty, upsetting some investors. Liberty stock fell $1 to $21.25 Thursday, while TCI stock rose 37¢ to $14.87.

TCI will emerge from the complicated reshuffle with a 20% stake in a new venture owning both the Encore Media Group and Starz!, with Liberty owning the other 80%. Right now, Encore, which earns $30 million to $40 million a year before interest, taxes and other charges, is 90% owned by Liberty and 10% by Encore chairman John Sie.

In contrast, Starz!, likely to lose $90 million to $100 million this year before interest costs, is currently 50.1% owned by TCI, 20% by Encore and 29.9% by Liberty.

As part of the deal, Encore will pay $400 million to TCI as partial payment for its interest in Starz! Encore plans to borrow this money in a bank facility it is negotiating, Bennett said.

Sie is selling his 10% stake in Encore to the new joint venture for an undisclosed price, although he is staying on as CEO.

As a result of the reshuffle, TCI won’t have to consolidate the loss-making Starz, while Liberty will have to consolidate the combined Starz-Encore — which will be at best break-even in 1998 before interest costs, Bennett said.

Encore gets something out of the deal: TCI agreed to sign a 25-year affiliation agreement to carry Encore and Starz!. TCI will pay $270 million in 1998, rising to $360 million in 2003, amounts that Bennett said were about $50 million a year more than TCI would have paid under the existing affiliation agreement.

Some analysts queried what the point of the exercise was, but Bennett noted that TCI’s commitment to fund Starz!’s startup losses expired by early next year, and Liberty had planned to restructure the ownership of the pay movie channel before then.

Still, Wall Streeters were unhappy about the rearrangement. “It’s not a great deal for Liberty,” said one analyst.

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