Revived Spin-Off Plan Bolsters Options For Liberty Media 12/15 09:59 AM



NEW YORK (Dow Jones)--Shares of Liberty Media Corp.'s entertainment-tracking stock (LMDIA) rose 25% in early trading Monday after the company, controlled by media mogul John Malone, said it reauthorized a spinout of the majority of its underlying assets into a new asset-backed stock.
The move, announced late Friday, is seen as a step toward simplifying the ownership structure of satellite television giant DirecTV Group Inc. (DTV:$22.78,00$-0.16,00-0.70%) , which is 52%-owned by Liberty Entertainment. Even after Monday's gain in the stock, Liberty's DirecTV (DTV:$22.78,00$-0.16,00-0.70%) holdings continue to trade at over a 35% discount to DirecTV's (DTV:$22.78,00$-0.16,00-0.70%) market value.
"Given the last start and stop of the Liberty Entertainment spin, we do not expect this announcement to close the discount completely," said Morgan Stanley (MS:$13.63,00$-0.22,00-1.59%) analyst Benjamin Swinburne. "The transaction is subject to IRS and shareholder approvals."
Liberty Media first announced plans for spinning off the tracking stock in September, but it had to backpedal on that in early November after the global financial crisis sparked a historic stock market sell-off that brought Liberty Entertainment shares down by 34% in October. The company's other tracking stocks, Liberty Capital (LCAPA) and Liberty Interactive (LINTA), were also pummeled in the sell-off amid concerns about liquidity and the prospects for U.S. consumer spending.
In a sign of the stress that the financial crisis was putting on John Malone's media empire, the company announced on Nov. 3 it would shift some bonds and cash from Liberty Entertainment to Liberty Interactive in order to shore up its balance sheet.
Shortly before that, the company disclosed that Malone had been forced to sell $49.5 million worth of Liberty Capital tracking shares in October to placate lenders about his family's debt, which includes covenants tied to the value of Liberty Media. Malone continues to be Liberty's largest shareholder, controlling more than 90% of each class of super-voting Class B shares in the company's three tracking stocks.
By completing a so-called "hard spin" of its Liberty Entertainment assets, Liberty Media hopes to create a vehicle that it can use to complete a transaction with DirecTV (DTV:$22.78,00$-0.16,00-0.70%) and bring the satellite company under one roof. That would make it easier for DirecTV (DTV:$22.78,00$-0.16,00-0.70%) to explore strategic opportunities, such as a sale or merger with a telecommunications giant, like Verizon Inc. (VZ) or AT&T Inc. (T:$26.77,00$-1.41,00-5.00%) .
At an investor conference in New York City last week, Liberty Media Chief Executive Greg Maffei raised the possibility that his company could eventually take voting control of DirecTV (DTV:$22.78,00$-0.16,00-0.70%) and merge it with Liberty Entertainment. Currently, Liberty Media's voting rights at DirecTV (DTV:$22.78,00$-0.16,00-0.70%) are capped at 48% due to a standstill agreement between the two companies.
Maffei said telecommunications companies could be interested in a deal with DirecTV (DTV:$22.78,00$-0.16,00-0.70%) as they lag in competition for television, Internet and phone-service subscribers with cable giants, like Comcast Corp. (CMCSA:$15.35,00$-0.30,00-1.92%) , Cablevision Systems Corp. (CVC:$13.71,00$-0.71,00-4.92%) and Time Warner Cable Inc. (TWC:$19.2900,$-0.4700,-2.38%) .