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Liberty Media Split-Off: Analyzing the Transaction and its Impact

This analysis discusses the split-off of Liberty Media Corporation's Liberty Entertainment assets into a separate public entity, Liberty Entertainment Inc. It examines the rationale behind the split-off, the ownership structure post-split, and the voting rights of John Malone.

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Liberty Media Split-Off: Analyzing the Transaction and its Impact

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  1. SPE INTERNAL Liberty Media Analysis GSN-FUN Transaction January 2009

  2. Liberty Capital • Liberty Interactive • Liberty Entertainment Liberty Media Corporation is Comprised of 3 Tracking Stocks • “LCAPA” , “LCAPB” • “LINTA” , “LINTB” • “LMDIA” , “LMDIB” • Atlanta National Baseball Club (100%) • Current Group (8%) • Embarq Corporation (3%) • Hallmark Entertainment Invest. (11%) • Jingle Networks (9%) • Kroenke Arena Company (6.5%) • Leisure Arts (100%) • LodgeNet Entertainment (9%) • MacNeil / Lehrer Productions (67%) • Motorola (3%) • Overture Films (100%) • Priceline.com (1%) • Sprint Nextel Corporation (3%) • Starz Media (100%) • Time Warner (3%) • TruePosition (100%) • Viacom (1%) • WFRV / WJMN Television (100%) • Backcountry.com (81%) • Bodybuilding.com (83%) • Borba (25%) • BUYSEASONS (100%) • Expedia (24%) • GSI Commerce (19.7%) • HSN (30%) • IAC / InteractiveCorp (30%) • Interval Leisure Group (30%) • Provide Commerce (100%) • QVC (100%) • Ticketmaster (30%) • Tree.com (Lending Tree) (30%) • DirecTV (54%) • FUN Technologies (100%) • GSN (50%) • Liberty Sports Holdings (100%) • Starz Entertainment (100%) • Wildblue Communications (37%) • Note: Checking if PicksPal, Inc. (73%) is already in this entity • NOTE: Percentages in parenthesis represent Liberty ownership stake; figures are approximations and when applicable, apply conversion to common stock.

  3. Liberty Plans to Split-Off A Subset of its Liberty Entertainment (LMDIA) Assets Into a Separately Traded Public Entity • New Wholly-Owned Subsidiary • Liberty Media Corp Tracking Stocks • Liberty Entertainment Inc. • Liberty Capital • Liberty Entertainment • Liberty Interactive • “LCAPA” , “LCAPB” • “LINTA” , “LINTB” • “LMDIA” , “LMDIB” • “LEI” • Atlanta National Baseball Club (100%) • Current Group (8%) • Embarq Corporation (3%) • Hallmark Entertainment Invest. (11%) • Jingle Networks (9%) • Kroenke Arena Company (6.5%) • Leisure Arts (100%) • LodgeNet Entertainment (9%) • MacNeil / Lehrer Productions (67%) • Motorola (3%) • Overture Films (100%) • Priceline.com (1%) • Sprint Nextel Corporation (3%) • Starz Media (100%) • Time Warner (3%) • TruePosition (100%) • Viacom (1%) • WFRV / WJMN Television (100%) • Backcountry.com (81%) • Bodybuilding.com (83%) • Borba (25%) • BUYSEASONS (100%) • Expedia (24%) • GSI Commerce (19.7%) • HSN (30%) • IAC / InteractiveCorp (30%) • Interval Leisure Group (30%) • Provide Commerce (100%) • QVC (100%) • Ticketmaster (30%) • Tree.com (Lending Tree) (30%) • DirecTV (52%) • FUN Technologies (100%) • GSN (50%) • Liberty Sports Holdings (100%) • Starz Entertainment (100%) • Wildblue Communications (37%) • DirecTV (54%) • FUN Technologies (100%) • GSN (50%) • Liberty Sports Holdings (100%) • PicksPal, Inc (73%) • Assets Transferred to Liberty Entertainment Inc. (Split-off Entity) • After the Split-Off: • Liberty Media will continue to utilize its three tracking stocks • Liberty Media will also own Liberty Entertainment, Inc. a publicly traded subsidiary

  4. Rationale for Split-Off (Per the Proxy) • Provide management of LEI with greater flexibility to make acquisitions and raise capital • Enable businesses and assets to be valued by the market without the complexities of a tracking stock, thus reducing the discount at which Liberty’s stake in DirecTV currently trades • Increase flexibility in structuring equity-based incentive awards

  5. 10 Shares • Liberty Entertainment • “LMDIA” , “LMDIB” • Starz Entertainment (100%) • Wildblue Communications (37%) • 90 Shares • Liberty Entertainment Inc. • “LEI” • DirecTV (54%) • FUN Technologies (100%) • GSN (50%) • Liberty Sports Holdings (100%) • PicksPal, Inc (73%) After the Split-off, a Shareholder that previously held 100 Shares of Liberty Entertainment Tracking Stock would hold 10 Shares of Liberty Ent. Tracking Stock and 90 Shares of Liberty Entertainment Inc. (LEI) • 0.9 of each share of LMDIA or LMDIB will be redeemed for 0.9 of a share of LEI Series A or B stock • 100 • 0.1 of each share of LMDIA or LMDIB will remain outstanding as the Liberty Entertainment tracking stock • Shares • This structure will enable holders of LMDIA or LMDIB stock to retain their pro-rata ownership stake in LEI

  6. John Malone Controls Roughly 34% of Votes in Liberty Media Corp. • John Malone Liberty Media Voting Rights by Tracking Stock* • John Malone Share Ownership by Tracking stock • After the Split-off, John Malone will control 34% of the votes in Liberty Entertainment Inc., which will own 54% of DirecTV • *B shares entitle owner to 10 votes for every share owned • Note: Liberty Media Proxy suggests Malone has more shares in LMDIB than total shares outstanding—the discrepancy appears immaterial

  7. GSN Issues Related to the Split-Off • GSN is a 5 year business asset which is highly likely required in the split-off for the transaction to be treated as tax free by the IRS. Tax free treatment is traditionally mandated in Liberty’s transactions • It appears Liberty is interested in having the GSN financials signed off to be utilized as part of the analysis for the split-off • The financials are currently open (i.e., with GSN’s auditor) pending resolution of the treatment of the DTV carriage fee situation • Operating agreement entitles SPE to a right-of-first-refusal for any change of control in the ownership of GSN—implications for SPE’s ability to block the split-off is uncertain

  8. Potential Impact of Carriage Fee Negotiations on GSN Annual Revenue / EBITDA • ISSUES TO DATE • GSN’s affiliate agreement with DirecTV has been out of contract since February 2007 and is currently being renegotiated • Since the expiration of the contract, DirecTV has paid a rate of $0.04 / sub as opposed to the previous rate of $0.082 • The reduced rate caused GSN to take a reserve against revenue of $5.6MM for 2007 and $6.8MM for 2008 • GO – FORWARD IMPACT • If negotiations with DirecTV retroactively trigger the MFN provisions for Comcast and Echostar, this would cause an additional decrease to revenue of $9.6MM in 2007 and $10.1MM in 2008 • Assuming the DirecTV rate triggers the MFN, GSN could lose approximately $18.1MM in 2009 (inclusive of lost DirecTV, Comcast, and Echostar revenues) • (1) Any change in affiliate revenue has no associated costs and therefore is a direct EBITDA impact

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