Once Liberty Media completes its split-off of Liberty Entertainment, the latter is going to merge with DirecTV and create a new company which will carry the DirecTV name. John Malone will be Chairman, with Chase Carey as President and CEO.
The planned merger will complete a restructuring and simplification of DirecTV’s capital structure which began when Liberty acquired a majority stake in DirecTV from News Corporation.
“We are pleased to announce this transaction as it will rightly put the control of DirecTV in the hands of DirecTV shareholders,” said Chase Carey, currently President and CEO of DirecTV. “Our existing equity structure was less than ideal. The transaction will improve our ability to pursue strategic initiatives that can enhance value for all DirecTV shareholders. Additionally, in Game Show Network, FUN Technologies and the three regional sports networks, we are acquiring valuable assets that fit in well with the future of the DirecTV business. We look forward to having the benefit of John Malone’s involvement, as a significant shareholder and as chairman of DirecTV’s board post-merger,” he added.
“This transaction clarifies DirecTV’s capital structure, reduces its shares outstanding, eliminates stock overhang and arbitrage issues, and provides DirecTV with strategic content businesses. And this transaction offers value to Liberty’s shareholders by eliminating the discount in our tracking stock structure and allowing them to continue to participate directly in the strong performance of DirecTV,” said Greg Maffei, President and CEO of Liberty Media.
The steps in the transaction include Liberty Media proceeding with the previously announced split-off of Liberty Entertainment, Inc. (LEI), which will hold the majority of the assets and liabilities currently attributed to the Liberty Entertainment group tracking stock. LEI will now be comprised of: (i) approximately 54% of the common stock of DirecTV, (ii) Liberty Sports Holdings, which owns three regional sports networks (RSNs), (iii) a 65% interest in Game Show Network (GSN) and FUN Technologies, (iv) approximately $30 million in cash in addition to cash generated by operations after March 31 and (v) $2 billion in debt. DirecTV will provide to LEI up to $650 million in funding pursuant to a term loan facility in order to service the LEI debt.
In the split-off, each holder of Series A Liberty Entertainment group tracking stock will receive 0.9 of a share of LEI Series A common stock and will retain 0.1 of a share of Liberty Starz stock, representing the balance of the assets and liabilities of the Liberty Entertainment group, for each share of Series A Liberty Entertainment group tracking stock held at the time of the split-off, and each holder of Series B Liberty Entertainment group tracking stock will receive 0.9 of a share of LEI Series B common stock and will retain 0.1 of a share of Liberty Starz stock for each share of Series B Liberty Entertainment group tracking stock held at the time of the split-off.
LEI and DirecTV Group (DTVG) will merge with subsidiaries of a newly formed subsidiary of DTVG that will be called DirecTV. As a result of the mergers, DirecTV will become the parent company of DTVG and LEI. DirecTV will have two classes of stock, Class A which will be entitled to one vote per share and Class B which will be entitled to 15 votes per share. In the DTVG merger, DTVG shareholders will receive one share of DirecTV Class A common stock for each share of DTVG common stock held. The holders of LEI Series A and Series B common stock (other than John Malone, his wife and associated trusts) will receive 1.1111 shares of DirecTV Class A common stock for each share of LEI Series A or Series B common stock held (as adjusted pursuant to the merger agreement). John Malone, his wife and associated trusts will receive 1.1111 shares of DirecTV Class B common stock for each share of LEI Series B common stock held (as adjusted pursuant to the merger agreement).
The businesses, assets and liabilities of the Liberty Entertainment group tracking stock not included in the split-off of Liberty Entertainment will continue to be attributed to the Liberty Entertainment group, which will be renamed “Liberty Starz”. Liberty Starz will consist of Starz Entertainment, 37% of WildBlue, PicksPal, Fanball and approximately $650 million in cash and cash equivalents. The Series A Liberty Starz common stock and Series B Liberty Starz common stock are expected to be listed on Nasdaq under the symbols LSTZA and LSTZB, respectively.
Shares of DirecTV Class A common stock are expected to be listed on Nasdaq under the symbol DTV. Shares of DirectTV Class B common stock will not be listed on any stock exchange.
As a result of the transactions, John Malone, his wife and associated trusts will hold shares of DirecTV Class B common stock entitling them to approximately 24% of DirecTV’s total voting power. The Malones have entered into an agreement that includes, among other things provisions requiring them to vote their shares in support of the transaction and agree to certain limitations on their rights to sell or acquire shares.
The split-off and the mergers are subject to the satisfaction of various conditions, including the receipt of regulatory approvals, the receipt of IRS private letter rulings and opinions of tax counsel, approval of the holders of DirecTV Group common stock, other than Liberty, directors and officers of Liberty, John Malone and his affiliates, and the approval of a majority in voting power of the holders of Liberty Entertainment group tracking stock, other than John Malone, his affiliates and officers and directors of Liberty, and other customary conditions. The companies currently anticipate that the split-off will occur before the mergers, which are currently expected to be completed in the fourth quarter of 2009.