NEW YORK (AFX) - Three days before Christmas, two of the most powerful men in the media business, Rupert Murdoch and John Malone, formally ended a long-running feud.
Under a deal announced Friday, Malone's Liberty Media Corp. will give its 16.3 percent stake in Murdoch's company back to News Corp., putting an end to what Murdoch had seen as a potential threat to the control of his globe-spanning media empire.
In exchange, Liberty will get a controlling stake in DirecTV Group Inc. -- a major satellite TV broadcaster with 15.6 million subscribers -- plus three regional sports networks and $550 million in cash.
Malone, Liberty's chairman, had surprised Murdoch two years ago by suddenly amassing a stake in News Corp. Murdoch responded by adopting a 'poison pill' antitakeover tactic that was met with protests from shareholders.
Talks between the two companies have dragged on, and both were frequently peppered with questions over how the situation would be resolved. Two weeks ago, the two reached a tentative agreement, and a formal deal was announced Friday.
Liberty's shares rose $4.23, or 4.52 percent, to close at $97.87 on the Nasdaq Stock Market. News Corp.'s dipped 5 cents to end at $21.53 on the New York Stock Exchange, while DirecTV's slipped 45 cents to $24.55.
In addition to eliminating a potential threat to Murdoch's control over News Corp., that company also benefits by effecting a stock buyback equivalent to $11 billion by taking in the shares owned by Malone, without having to buy them back with cash.
Since the deal is structured as a swap of assets instead of a sale, both sides will realize huge tax savings. A.G. Edwards analyst Michael Kupinski said in a note to investors that the deal, in addition to giving Liberty increased distribution clout, was also worth $15 per share in tax benefits alone.
With the deal with Liberty complete, News Corp. said it expected to cancel its 'poison pill' antitakeover measure.
News Corp. also said it would consider eliminating its staggered board, another measure that is unpopular with shareholders. Under a staggered board, not all directors stand for election each year.
The transaction must still be approved by regulators and a majority of News Corp.'s Class B voting shareholders, with the exception of Liberty and the Murdoch family. Assuming it gets those approvals, it should close in the second half of 2007, News Corp. said in a statement.
Murdoch and Malone -- a cable industry pioneer and a longtime powerhouse in media investing -- have known each other for years and have been business partners before. The tensions between the two date back to 2004, when Malone accumulated a large voting stake in News Corp. as Australian investors unloaded their stakes when Murdoch's company relocated its headquarters from Australia to the United States.
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.
In addition to the 38.4 percent stake in DirecTV, Liberty will also receive three regional sports networks -- FSN Northwest, FSN Pittsburgh, and FSN Rocky Mountain.
News Corp. is a major global media conglomerate that includes the Twentieth Century Fox movie and TV studio; the Fox broadcast network; the Fox News Channel and FX cable networks; a large portfolio of newspapers in the United Kingdom and Australia as well as the New York Post; and the social networking site MySpace.
For Liberty, the deal further simplifies a complex financial structure for the Englewood, Colo.-based company, which holds stakes in a number of other companies, and gives it another operating business to run. Liberty owns the home shopping network QVC and the pay TV channel Starz.
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© 2006 AFX News
