DIRECTV & Liberty Media: Complicating An Enigma (DTV, LINTA, LINTB, LMDIA, LMDIB, LCAPA, LCAPB)

DIRECTV Group, Inc. (NYSE: DTV) has announced that it is going to combine with Liberty Entertainment, Inc., and then the company will be split off from Liberty Media.  This supposedly puts the control of DIRECTV in the hands of the shareholders.  While Liberty’s structure was complicated before, this “simpler” structure is one which may also leave shareholders scratching their heads.

Liberty Interactive group (NASDAQ:LINTA) (NASDAQ:LINTB), and Liberty Entertainment group (NASDAQ:LMDIA) (NASDAQ:LMDIB), and Liberty Capital group (NASDAQ:LCAPA) (NASDAQ:LCAPB) are all mixed in the deal.

The company will also have Game Show Network, FUN Technologies and the three regional sports networks. Liberty Entertainment Inc. will now be comprised of:

• approximately 54% of the common stock of DIRECT;
• Liberty Sports Holdings, which owns three regional sports networks;
• a 65% interest in Game Show Network (GSN) and FUN Technologies;
• approximately $30 million in cash in addition to cash generated by operations after March 31;
• $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; 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. 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. 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.

This has been a very confusing story for years.  The new structure does not seem that much less complicated on the surface.  We have heard of many shareholders who have refrained from investing in the Liberty companies because they have had too hard of a time determining what they really own in each class of stock.  And after reading the above scenarios it may be good to ask yourself if the structure sounds easy to explain now……..

JON C. OGG