From Bloomberg, By Andy Fixmer and Cecile Daurat
News Corp.'s Murdoch, Liberty's Malone May End Battle
Dec. 7 (Bloomberg) -- Billionaires Rupert Murdoch and John Malone may end two years of wrangling over Liberty Media Corp.'s stake in News Corp. with an $11 billion asset swap that gives Liberty control of DirecTV Group Inc.
Murdoch's News Corp., the third-largest U.S. media company, agreed to buy back the 19 percent voting stake held by Malone's Liberty in exchange for News Corp.'s 39 percent of DirecTV, $550 million in cash and some other television assets, the New York Times reported, citing unidentified people briefed on the accord.
The agreement ends a tussle that started in 2004 when Malone began building a stake in News Corp. Murdoch, who described the standoff as a ``cloud over the company,'' installed a poison-pill takeover defense to stop Malone increasing his holdings. By swapping assets and exchanging a limited amount of cash, the companies will save money on taxes, said Sanford C. Bernstein analyst Michael Nathanson.
``This deal will help Liberty and News Corp. each avoid literally billions in capital gains taxes on their investments in News Corp and DirecTV, respectively,'' said Nathanson, who is based in New York and rates News Corp. shares ``outperform.''
Shares of Liberty Capital tracking stock gained $2.27, or 2.6 percent, to $90.20 at 10:49 a.m. New York time in Nasdaq Stock Market composite trading. Before today, they had gained 25 percent since they began trading in May. New York-based News Corp. gained 64 cents, or 3.1 percent, to $21.46 in New York Stock Exchange trading.
News Corp. spokesman Andrew Butcher declined to comment yesterday. John Orr, a spokesman for Englewood, Colorado-based Liberty Media, didn't return calls seeking comment.
A contract may be signed within two weeks, the New York Times reported, citing an unidentified banker briefed on the deal.
News Corp. may now buy back more stock to strengthen Murdoch's grip on the company, Bank of America analyst Douglas Shapiro said in a note to clients last night.
``Murdoch seems focused on consolidating the family's control of the company, and there are no obvious uses for the cash,'' Shapiro wrote. Shapiro, who rates News Corp. a ``buy,'' said a deal may boost News Corp.'s earnings per share by about two percentage points through 2010.
Murdoch, 75, invested in DirecTV, the largest U.S. satellite- television provider, in December 2003. The strategy to create a global satellite-television business became less attractive after U.S. cable-television companies began offering telephone and Internet services in packages that satellite-TV providers couldn't match.
``Malone is the better negotiator here,'' said Laura Martin, an analyst with Soleil Securities in California. ``The best strategist on earth, Rupert Murdoch, is disassembling his satellite empire at the speed of light.''
The deal vaults Malone, 65, into the spotlight again as a media operator. He hired Chief Executive Officer Greg Maffei last November to convert Liberty's investments into businesses without incurring a tax bill.
Liberty's insistence on a transaction that minimizes taxes held up the talks. The companies had discussed swapping the stake for DirecTV as far back as September.
Taking the stake in El Segundo, California-based DirecTV would give Malone a stake in a satellite-TV provider with almost 16 million customers. It also gives the company an outlet for its networks including the QVC home shopping unit and Starz Entertainment channel.
If a deal is reached, Liberty Media may reduce its stake in DirecTV to as little as 21.5 percent, Maffei said yesterday at the UBS AG investment conference in New York. ``Just that alone is financially attractive,'' he said.
Liberty Media may also keep the stake or seek full control of the business, Maffei said. All those options would minimize taxes. ``One of the appeals of DirecTV is there's a lot of financial flexibility,'' he said.
``Malone is just a great financial engineer,'' Martin said.