Liberty Media Corp. (LINTB) has decided to split off a majority of its diversified entertainment group in a subsidiary as an asset-based tracking stock, in a move designed to give it strategic flexibility in tough times.
Unlike many tracking stocks, the proposed offering would be based on the value of its assets, which include DIRECTV Group Inc. (DTV) and content ownership.
Liberty Media’s board of directors authorized the effort over the weekend. The parent owns interests in a broad range of electronic retailing, media, communications and entertainment businesses.
The subsidiary, which would become a separate public company, would be called Liberty Entertainment Inc. The businesses, assets and liabilities not included in Entertainment would continue to be attributed to the Liberty Entertainment group tracking stock ("LMDI.")
“We continue to work on a plan to split-off Entertainment,” said Greg Maffei, president and CEO of Liberty, in prepared comments. “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.”
Media giants join cablecos and telcos who are seeking alternatives for financial flexibility to enable them to survive and survive tough economic times. Burdened with $20 billion in debt, cable giant Charter Communications Inc. (CHTR) last week revealed plans to work with shareholders to add value and attain greater financial flexibility. Other companies such as AT&T Inc. (T) have reorganized this year, and/or cut staff in this pursuit.
If the transaction is completed as currently contemplated, Entertainment will be comprised of approximately 52 percent of DIRECTV, 50 percent of GSN, LLC, 100 percent of FUN Technologies and 100 percent of Liberty Sports Holdings, LLC, which holds three regional sports networks, according to Liberty Media.
Entertainment would carry approximately $2 billion in debt incurred to acquire 78.3 million DIRECTV shares in April 2008. Following the completion of the transaction, Liberty explained, LMDI will primarily consist of 100 percent of Starz Entertainment, 37 percent of WildBlue Communications Inc., and an undetermined amount of cash.
The split-off is subject to the satisfaction of various conditions including shareholder approval. Liberty says it’s expected that the executive officers of Liberty also will serve as the executive officers of Entertainment. There will be no change to the businesses, assets and liabilities attributed to the Liberty Interactive group or Liberty Capital group as a result of the split-off.
