John Malone’s Liberty Media plans to spin off its premium pay-TV network Starz LLC into a separate public company in a deal seen as the latest step to taking control of Sirius XM. Starz, which runs movie and TV channels as well as Encore-branded movie channels, will become a separately-listed company with about $1.5 billion of debt, says Reuters.
Liberty Media has previously said it was considering a tax-free spinoff of its 46% stake in Sirius XM. Liberty told the FCC in May it intended to take control of Sirius.
By separating Starz from Liberty Media it could make it easier to move ahead with merging with Sirius XM, though Liberty CEO Greg Maffei said the Starz move had no bearing on its plans for Sirius.
“This could also be a logical step toward potentially effecting a merger or Reverse Morris Trust transaction with the remaining Liberty Media assets and Sirius XM Radio,” ISI Group analyst Vijay Jayant told Reuters, naming a tax avoidance strategy of transferring a company’s assets. “If that is the way the transaction occurs, saddling Sirius with non-strategic assets could be a marginal negative for Sirius shareholders.”
Maffei said in a statement the deal would provide better transparency on the Starz operating business, optimize Starz’s capital structure and create significant liquidity at Liberty Media.
Starz’s Q2 revenue was flat at $403 million, while adjusted operating income before depreciation and amortization fell 8.5% to $108 million.
Liberty Media’s quarterly revenue was flat at $537 million while net earnings rose 75% to $156 million, boosted by an $85 million tax benefit.