Liberty Media gains control of DirecTV in exchange for minority stake in News Corp
Rupert Murdoch is to pay a $1bn premium to rid his News Corp media empire of the troublesome minority stake held by his old friend-turned-rival, John Malone.
The 75-year-old media mogul has agreed an asset swap that will hand over control of the US satellite broadcaster DirecTV to Mr Malone's company, Liberty Media, in return for the $11bn stake it has built up in News Corp.
The deal was agreed in a telephone call between the two men earlier this week, marking the end to a high-stakes stand-off that has lasted two years.
Mr Malone stunned his old friend and occasional business partner by secretly accumulating 19 per cent of News Corp's voting shares, threatening Mr Murdoch's grip on a company that he plans to hand to his children. And in a move that infuriated shareholders, News Corp responded with a "poison pill" takeover defence designed to halt any further share buying by Liberty.
The verbal agreement between the two sides - the culmination of months of discussions - has now been passed to lawyers and bankers and is likely to be announced before Christmas, perhaps as early as next week. Neither side would confirm the agreement yesterday.
As a result of buying out Liberty, the Murdoch family holding of News Corp's voting shares will rise from 30 per cent now to approximately 36 per cent, and the most significant threat to family control has been removed.
News Corp's 39 per cent stake in DirecTV is already worth $11.1bn, roughly the same value as Liberty's stake in News Corp. But Mr Murdoch has agreed to throw in $550m in cash and three television sports networks worth at least an additional half a billion dollars. The latter have been included in order to ensure that the deal is tax-free. Sources said Liberty is expected to save about $2bn in capital gains and News Corp will save over $1bn.
Mr Malone has driven an increasingly hard bargain in negotiations, arguing that DirecTV's value has been inflated by bid speculation. Liberty also ratcheted up the pressure on Mr Murdoch by withholding its support for the re-election of several directors - including his son, Lachlan - at News Corp's annual meeting in October. Mr Murdoch invested in DirecTV, the largest US satellite television provider, in December 2003 after years of wooing the company, but the plan to create a global satellite empire has become less attractive since cable TV rivals began packaging together phone and broadband internet services that DirecTV cannot match. Nonetheless, DirecTV shares are up about 50 per cent since Mr Murdoch bought in.
Doug Mitchelson, media sector analyst at Deutsche Bank, told clients the resolution of the stand-off with Liberty was a "huge positive" for News Corp. The share buy-back will boost earnings per share while the company is also freed of responsibility for DirecTV. Mr Mitchelson said: " We saw no meaningful synergies between DirecTV and News Corp, and this deal refocuses the asset base and management on core growth opportunities like MySpace and digital distribution of content."
Liberty Media has been struggling to make sense of its rag-bag collection of media investments, which also include a 4 per cent stake in Time Warner, and television assets which include the QVC shopping channel. Earlier this week, Greg Maffei, Liberty's chief executive and Mr Malone's right-hand man, suggested DirecTV could be merged with rival satellite broadcaster EchoStar, or with a telephone company.
News Corp shares have surged more than 25 per cent since Mr Malone doubled his stake in the company in October 2004, allowing the 65-year-old media industry veteran to claim a significant profit on his investment.
Investors said they hoped News Corp would now rescind the controversial " poison pill" defence introduced without consultation by Mr Murdoch in November 2004, which allowed the company to issue new shares to dilute the Liberty stake should it fear a hostile takeover.
Shareholders were furious at their high-handed treatment by Mr Murdoch, who went back on an apparent promise to allow a vote on the "poison pill" when News Corp transferred its domicile from Australia to the US. Investors launched a legal challenge. Mr Murdoch conceded a vote this year and in October the poison pill was extended for a further two years.