Liberty to spin off DirecTV

John Malone (pictured, left) is to spin off DirecTV plus a cluster of cable channels (including Starz) as part of a plan to focus on other objectives. This suggests that Malone has drawn a line under any plans to merge DirecTV with Charlie Ergen’s DISH Network, which Malone has recently said would in any case be a regulatory challenge.

John Malone, “the cable guy”, is always full of Wall Street surprises. His quoted Liberty Entertainment (LMDIA) operation will be separated into a fully stand-alone operation.

Malone’s media interests are held via Liberty Media which currently trades as three separate tracking shares, each with two classes of stock. Liberty Entertainment is one, Liberty Interactive (LINTA) - which tracks home shopping network QVC and other assets - and Liberty Capital (LCAPA) - which holds other investments - are the others. The original idea was to permit investors to pick and mix each or any of the Malone vehicles that most interested them.

Yesterday (Sept 3) Liberty said they would swap the LMDIA entertainment tracking stock with new shares in the subsidiary, which will then become a separate company. The company’s existing management would stay on and supervise the new business.

But the business will have a ton of debt, currently about $2bn-worth, and this impacted the market yesterday with the company’s bond rating risk jumping 104 basis points to 473 basis points, which signals some anxiety in investors’ confidence suggested brokers Phoenix Partners.

“We believe converting the Liberty Entertainment tracking stock to an asset-backed security will create a stronger currency and allow greater flexibility to pursue our strategic objectives," said Greg Maffei, president/CEO of Liberty.

Liberty, in a statement, said the shape of the new unit would comprise approximately 50% of The DirecTV Group, 100% of Starz Entertainment, FUN Technologies, and Liberty Sports Holdings, 50% of GSN and 37% of WildBlue Communications. Entertainment will be the obligor on approximately $2 billion in debt incurred to acquire 78.3m DirecTV shares in April 2008.