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GSN/FUN Update February 19, 2010. Executive Summary. A sale of SPE’s 35% stake in GSN to DirecTV or a third party could generate a significant gain but should be structured to protect strategic benefits Position as generating funds for redeployment in wholly-owned channels (new or existing)
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GSN/FUN Update February 19, 2010
Executive Summary • A sale of SPE’s 35% stake in GSN to DirecTV or a third party could generate a significant gain but should be structured to protect strategic benefits • Position as generating funds for redeployment in wholly-owned channels (new or existing) • Determine if other operating relationships (e.g., licensing of shows) should be protected contractually post sale • However, there is currently no forcing function for a sale to DirecTV • Unclear if DirecTV’s new management intends to acquire network assets • Buy/sell not in place until December 2011; “put” not in place unless DirecTV is sold to a third party • DTV has a right of first refusal on a sale • We need to identify a process for gauging DirecTV’s interest without losing leverage in a sale • Discuss new management’s desire to control / consolidate GSN • Consider whether operating relationships create a point of leverage (lLicensing deals expire in February 2011; GSN seeking to license WOF and Jeopardy! for Facebook) • Endemol has expressed interest and should be factored into the approach • If we identify a set of conditions under which we would sell to Endemol (e.g., retain an operating deal or swap for production co. assets); Endemol discussions would create a forcing function with DirecTV
Summary of Prior Transaction Valuation in February 2009 Transaction Gain if sold for $780MM 3/31/2011 GSN FUN Combined Assumed Transaction Price $780MM Assumed Transaction Price $600MM $180MM $780MM SPE Stake % Sold / Bought 35% 15% 35% N/A Value of SPE Share $273MM Cash to (from) SPE $90MM ($63MM) $27MM Basis (1) $78.6MM Resulting SPE Stake 35% 35% 35% Gain $194.4MM Basis 3/31/2009 1/31/2010 3/31/2011 Remaining GSN Basis $13.8MM -- -- FUN Purchase $63MM -- -- Total GSN/FUN Carrying Value $76.8MM $69.9MM $78.6MM (1) • Includes dividends of $0.5M from Feb-Mar 2010 and $17.5M in FY11 and equity income of $3.1M from Feb-Mar 2010 and $23.6M in FY11.
Combined GSN/FUN Earnings Are Roughly In-Line With Expectations • Since the last transaction, underperformance by FUN has been offset by over performance by GSN • Provided by GSN Management September 2008; earnings are pro forma as if DirecTV was paying $0.075/sub in all years, CY08 excludes $5.6MM Comcast Reserve Reversal and CY09 excludes a one-time DTV catch-up payment of $13.8MM. • CY2009 per Management budget; CY2010-CY2012 per SPE haircut to forecast
Valuation Considerations at Time of Last Transaction (April 2009) • Each business was valued independently • DCF values and comparable transaction multiples were generally in-line with actual transaction values • However, transaction values were at significant premiums to public markets, which were depressed at the time FUN Valued at $180MM GSN Valued at $600MM DCF DCF DCF at 11% after-tax discount rate DCF at 15% after-tax discount rate $645MM $198MM (7%) (9%) Deal was below DCF by: Deal was below DCF by: Public Comparables Forward Trailing Public Comparables EBITDA(1) Multiple for Comps(2): 7.3X 6.8X Forward EBITDA Multiple for Comps: 8.4X EBITDA(1) Multiple for GSN @ $600MM: 16.4X 12.2X Forward EBITDA(4) Multiple for FUN @ $180MM: 13.6X Deal was above Comps by: 125% 79% Deal was above Comps by: 62% M&A Transactions M&A Transactions Trailing EBIT Multiple on Comps(3): 15.0X Trailing Revenue Multiple on Comps(5): 3.1X Trailing EBITMultiple for GSN @ $600MM: 12.2X Trailing Revenue Multiple for FUN @ $180MM: 3.2X Deal was below Comps by: (19%) Deal was above Comps by: 4% • EBITDA multiples are after programming amortization. • Comparables included Scripps and Discovery. • Median of selected media M&A transactions from 2006 through January 2009 adjusted downward to account for declines in public markets through April 2009. • Based on FUN 2009 EBITDA forecast at time of deal, which was $13.2MM. • Revenue multiples on comparable transactions were decreased by 35% to account for declines in public markets through April 2009.
Valuation Considerations Today • Going forward, GSN/FUN is likely to be valued as a single business and compared to comparable cable networks • A combined $780MM valuation remains in-line with values implied by recent M&A transactions and is now more in-line with public comparables • 45% - 49% premium to public multiples is a healthy but feasible control premium Comparable Transactions Public Comps EV/EBITDA EV/EBITDA Forward Trailing Trailing Multiple for Comps(1) 8.1X 10.4X Travel Channel / Scripps 13.9X GSN/FUN Multiple @ $780MM Value (2) 11.7X 15.5X GSN/FUN Multiple @ $780MM Value 15.5X Implied Premium 45% 49% Implied Premium 12% • For Scripps and Discovery, multiples represent 12 months ending CY2009 and CY2010. EBITDA is after programming amortization. • Multiple based on CY2009 EBITDA of $50.4MM and CY2010 EBITDA of $66.4MM.
In November 2009, Liberty Split-Off a Subset of Assets Including GSN 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%) • PicksPal, Inc (73%) • DirecTV Group (54%) • GSN/FUN Technologies (65%) • Liberty Sports Holdings (100%) Assets Transferred to Liberty Entertainment Inc. (Split-off Entity)
DirecTV Group Stockholders (excluding LEI) “LEI” Stockholders • DirecTV Group (54%) • FUN Technologies (100%) • GSN (50%) • Liberty Sports Holdings (100%) • DirecTV Group (46%) LEI Was Subsequently Merged into DirecTV, Which Now Owns 65% of GSN / FUN OLD NEW • DirecTV Group (100%) • GSN/FUN Technologies (65%) • Liberty Sports Holdings (100%) DIRECTV “Holding” (Ticker: DTV) 7