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DirecTV hopes merger with Liberty Entertainment will propel growth

May 4, 2009 |  4:53 pm

Chase_malone-500 

In a move aimed at getting more control of its destiny, satellite broadcaster DirecTV Group is merging with Liberty Entertainment, a programming arm of media mogul John Malone's Liberty Media Corp. The all-stock deal will put a handful of cable networks under DirecTV and give Malone a 24% voting stake in the company.

The deal will make it easier for DirecTV to "pursue strategic initiatives," said Chase Carey, president and chief executive of the satellite programmer, which has 17.6 million subscribers in the United States.

Moving over to DirecTV from Liberty Entertainment are a majority stake in GSN, a game show-themed cable network in roughly 60 million homes, and three regional sports channels based in the Northwest, Colorado and Pittsburgh. Also part of the deal is Fun Technologies, a fantasy sports online site.

"Anytime DirecTV can get more sports content, it helps them compete against cable," said Daniel Longfield, an analyst at Frost & Sullivan.

As of late, DirecTV has been investing more in its programming, partnering with NBC Universal on the critically acclaimed but low-rated high school football drama "Friday Night Lights." It has also started buying older television shows and has a couple of original series. While DirecTV primarily uses a heavy load of sports content to distinguish itself from its cable competition, it now sees having more of its own content as another draw. In the last four years, DirecTV has added about two million more subscribers.

Since this is a John Malone deal it is, of course, ridiculously complex with a goal of being tax-free. First Liberty Media will proceed with an already announced split-off of Liberty Entertainment. DirecTV will then merge with Liberty Entertainment to become DirecTV the parent company. DirecTV will assume about $2 billion in debt and throw in as much as $650 million cash to service the debt load.

Malone and his wife and various trusts have agreed to provisions that force them to vote in support of the deal and agree to limits on their rights to buy and sell shares in the new company.

"This transaction offers value to Liberty's shareholders by eliminating the discount in our tracking stock structure and allowing them to continue to participate directly in the strong performance of DirecTV," Liberty Chief Executive Greg Maffei said. 

After the split-off and merger, each holder of one share of Liberty Entertainment's tracking stock will get one share of DirecTV and keep 0.1 share in Liberty Starz, which will become the new entertainment unit for Liberty Media.

Liberty Starz's assets will include its premium cable network Starz, which is not part of the DirecTV transaction. A newly created unit which will also house WildBlue, a rural broadband provider; PicksPal, a sports gambling service that Liberty bought earlier this year; and Fanball, a fantasy sports company. Liberty Starz will also have $650 million in cash and cash equivalents.

-- Joe Flint

Photos: DirecTV's Chase Carey (left) and Liberty's John Malone (right). Credit: Matthew Staver / Bloomberg News

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