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Liberty Media To Form Entertainment Subsidiary

December 15, 2008

Liberty Media Corp. announced on Friday its plan to spin off the bulk of its Liberty Entertainment unit, which holds a majority stake in satellite TV company DirecTV group.

The broadly anticipated plan calls for Liberty Media Corp., the holding company owned by media magnate John Malone, to form a new publicly traded subsidiary under the name Liberty Entertainment Inc., which will include the DirecTV stake, half the cable TV joint venture GSN, all of gaming company FUN Technologies and Liberty Sports Holdings, which consists of three regional sports networks. 

The spinoff is aimed at reducing the disparity between the value of Liberty Entertainment’s assets and its stock price.   Currently, DirecTV has a market capitalization of roughly $24 billion, while Liberty Entertainment, which owns a majority stake in the satellite operator, is valued at roughly $6 billion.

The deal is intended to be tax-free to stockholders.

“We believe a new asset-backed security will reduce the discount from fair value in our stock, thereby making it a more attractive currency, and will permit us to better pursue our strategic objectives,” said Liberty’s CEO, Greg Maffei, in a statement.

Starz Entertainment and its stake in satellite operator WildBlue will not be a part of the new subsidiary, and will remain part of the current Liberty Entertainment group tracking stock –one of three that comprise Liberty Media.

Malone had earlier split Liberty’s stock into three tracking stocks associated with its various operating and investment assets.  These included QVC and positions in media companies such as IAC/InterActive Corp. and Time Warner Inc.  The move was intended to allow investors to purchase shares tied to certain underlying assets that they found appealing.

The other two tracking stocks’ businesses and assets will be unaffected by the Liberty Entertainment deal, the company said.

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