News Corp and Liberty Media Swap Stakes, End Feud

December 23, 2006 7:40am CST
Murdoch's News Corp., the third-largest U.S. media company, will swap its controlling stake in the satellite TV broadcaster DirecTV Group Inc. for Liberty Media's 16 percent stake in News Corp. The move is expected to end the feud between Rupert Murdoch and John Malone over Liberty Media Corp.'s stake in News Corp. The deal, which is the result of discussions that had been dragging on for months, is subject to various regulatory approvals and must also be approved by a majority of the holders of News Corp.'s Class B voting shares, excluding the Murdoch family and Liberty. Murdoch's News Corp., the third-largest U.S. media company, agreed to buy back the 16.3 percent stake held by Malone's Liberty in exchange for 38.5 percent of DirecTV, $550 million in cash and three regional sports networks, the companies said in a joint statement today. Liberty's Chairman John Malone surprised Murdoch two years ago by suddenly building up a large stake in the global media conglomerate that Murdoch built. Malone's stake is currently worth about 16 percent of News Corp., but since many of the shares are the Class B voting shares, Malone's voting power was about 19 percent, potentially rivaling the Murdoch family's voting power of about 30 percent. By swapping assets, Liberty and News Corp. can avoid billions of dollars in capital gains taxes, according to Michael Nathanson, a Sanford C. Bernstein analyst in New York, quoted by Bloomberg. Saudi prince Alwaleed bin Talal al Saud who is an investing tycoon and chairman of the Kingdom Holding Company said in an interview with Charlie Rose that he had about a 6-7% stake in News Corp. Relations between Murdoch and Malone, once allies, have been tense since Liberty accumulated a large voting interest in News Corp. two years ago. At the time, News Corp. adopted a poison-pill takeover-defense plan to stop Liberty buying any additional stock. Murdoch had made his first acquisition in the United States in 1973, when he purchased the San Antonio Express-News. Soon afterwards he founded the National Star, a supermarket tabloid, and in 1976 he purchased the New York Post. In 1981 News Corp. bought half the movie studio 20th Century Fox, buying the other half in 1984. In 1985 News Corp. announced it was buying the Metromedia group of stations, setting the stage for the launch of a fourth U.S. broadcast network. On September 4, 1985, Murdoch became a naturalized citizen to satisfy the legal requirement that only United States citizens could own American television stations. In 1986, the Metromedia deal closed, and the Fox Broadcasting Company was launched. This network, known on-screen only as "Fox", can now be picked up in over 96% of U.S. households, according to Wikipedia. Liberty Media originated as part of TCI, an American cable television group, and acquired by AT&T ('Ma Bell') in 1999 for $54 billion. It was spun-off from AT&T in the second half of 2001, subsequently spending $5 billion on nine German regional cable networks. Apart from television distribution it holds major interests in other groups. For example it is the largest shareholder in News Corporation (though the founding Murdoch family owns more voting shares), and has a 4 % stake in Time Warner. As of December 2003 it has never paid a dividend. In May 2006, Time Warner acquired Liberty Media's 50% stake in Court TV for $735 million. On May 16, 2006, IDT sold its IDT Entertainment division to Liberty Media for "for all of Liberty Media's interests in IDT, $186 million in cash and the assumption of existing indebtedness." IDT Entertainment's assets and Starz Entertainment Group's popular line of premium TV channels will combine to produce content for all distribution platforms, according to Wikipedia.
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