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Public gets half life of Discovery

Transition to a standalone company stymies some on Wall Street

As media congloms split up and slim down, John Malone may be the first out of the gate to create a separate public company. His Liberty Media late last week set a July 21 date to spinoff its 50% stake in Discovery Communications.

Discovery’s a golden brand with a solid stable of networks. But — given its complex ownership structure — its transition to a standalone company continues to stymie some on Wall Street.

“We are unclear why investors would want to own the newly created entity,” says analyst Rich Greenfield of Fulcrum Global Partners.

The rub: Liberty only owns 50% of Discovery, while partners Cox and Newhouse each own 25%.

That means the public Discovery won’t have access to the cash flow of its primary asset, or management control.

It will consolidate only Ascent Communications, a much smaller wholly owned biz that Liberty will lump in.

Malone has said he’d “put a fair amount of money on the table” that Cox and Newhouse will contribute their stakes. But there’s no indication that will happen anytime soon.

And there may be tax reasons for Cox and Newhouse to steer clear for several years.

“It appears Liberty is trying to start the clock on the tax-related issues in the hopes that Cox and Newhouse participate long term — which we do not believe is a compelling longterm selling point,” notes Greenfield.

Still, Malone, long regarded as a financial wizard, has staunch fans in the investment community. How the spinoff is received will be a key test of that rep.

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