Moguls drive swap
The consummation of News Corp. and Liberty Media’s long-anticipated swap of stock holdings could have broad consequences for both companies.News Corp. announced a swap Friday by which the conglom will acquire a 16% share of its stock from Liberty in exchange for News Corp.’s 39% stake in DirecTV, as well as three regional sports nets and $550 million in cash. Liberty’s share of News Corp. is presumed to be worth about $11 billion, while the DirecTV stake is valued at nearly $12 billion. Deal is expected to save both companies billions in capital-gains taxes. Wall Street was soon abuzz with the various possibilities the deal presented to Liberty and topper John Malone. While some of Malone’s investments are passive — Liberty Media, through tracking stocks Liberty Capital and Liberty Interactive, has stakes in a number of cable nets and new-media companies — the News Corp. deal gives it a strong voice at the country’s biggest satcaster. After a hiatus of more than seven years, the former TCI chief is back in the business of domestic television distribution, albeit via a minority share. Deal also closes a loop of sorts: Malone’s TCI originally struggled because many of its customers were switching over to satellite. (Liberty eventually sold the company at a premium to AT&T.) There are a number of paths Malone could take with DirecTV: Flip it, hold it or, in a possibility tantalizing to many on Wall Street, buy the outstanding shares and take the company private. While cash from a sale would be welcome for an acquisitions-minded company like Liberty, it could also be in Malone’s interest to take full control of the satcaster. Liberty has stakes in a number of comparatively small cable nets, and the company could use DirecTV’s 15.6 million subscribers to gain more exposure for networks like GSN and Starz. Liberty is also expected to explore the possibilities of using DirecTV as an interactive retail platform; Liberty already owns Provide Commerce, a collection of Web sites that sell perishable items. With Liberty now in the game, DirecTV could also be poised for another merger attempt with EchoStar. DirecTV had earlier attempted such a move but was rebuffed by regulators, and many on Wall Street felt Rupert Murdoch was hesitant about running that gauntlet again. The possibility of a merger with a telco has also not been ruled out by CEO Greg Maffei and other execs at Liberty, who could reason that it would be wiser to partner with telcos than to try to compete with them, as many cable companies are doing. For News Corp., the deal is costly but is also a coup in several ways. First, it reps a profit of more than $3 billion over what it originally paid for DirecTV three years ago. It also makes the thorny issue of Malone — who had prompted consternation and the enactment of a poison-pill provision at News Corp. –effectively disappear. Murdoch family now owns 38% of News Corp. stock, a percentage that could ease the company’s succession plans. Move, which chief operating officer Peter Chernin has described as “essentially a massive stock buyback,” also allows the company to own more stock at a propitious time: Its share price has risen more than 35% in the past year. It also provides an exit to News Corp. from the sometimes-troubled satellite biz. While cable can offer phone and Internet services in the so-called triple play, satellite has been unable to make such an offering. (DirecTV does offer a separate package to customers for Internet and telephony through Qwest.) News Corp. execs have been publicly critical of the satcasting biz over the last several months. Still, DirecTV has recently enjoyed an earnings renaissance; profits quadrupled in a recent quarter. There is a potential downside in News Corp. disengaging from the satcasting biz, as Fox won’t be able to explore synergies with DirecTV. While News Corp. nets weren’t overly aggressive in that department, the DirecTV stake did allow for a new-media testing ground of sorts. In one experiment, Fox struck a deal with DirecTV in which subs were entitled to sneak peeks at several FX series for a small fee.
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