Analysts optimistic about DirecTV

Expect positive effect from Malone's decreased involvement

Wall Street expects DirecTV to attract new investors and start paying regular dividends now that John Malone has agreed to scale back his involvement with the satellite TV giant.

Some analysts see a related upside in shares of Malone's Liberty Global, whose cable assets in Puerto Rico overlap with those of DirecTV.

Liberty Media chairman Malone and his family will give up all DirecTV Class B stock with its bigger voting power and convert it to regular Class A shares, cutting their voting stake from 24.3% to 3%, the two parties unveiled Tuesday. Malone and Liberty CEO Greg Maffei will also leave the DirecTV board.

The resulting move to a single-class stock structure at DirecTV should be "a positive on the surface as it eliminates the effective minority shareholder discount aspect of having a chairman with 15 votes per share," Miller Tabak analyst David Joyce wrote.

Collins Stewart analyst Thomas Eagan also highlighted the benefits.

"DirecTV may be losing John Malone as its chief negotiator, but the company will be more likely to issue a regular dividend," Steward said.

Is there a risk that Malone will sell his shares on the open market, putting downward pressure on DirecTV's stock?

"We doubt that," argued Eagan. "We expect the tax-averse Mr. Malone will wait to participate in a larger, more strategic, tax free exchange of his DireTV shares."

The elimination of the dual-class stock structure only makes the firm more attractive to potential suitors, the analyst added.

But Joyce is mixed on whether a long-rumored sale to a telecom giant is more likely now. "A single class structure makes it cleaner to vote for a deal without other motives involved," he said. "But the flip side is there might be less impetus to do a deal if there are fewer potential asset swaps that could take place."

Malone's DirecTV move will help highlight the value of Liberty Global, in which the mogul has a 7% economic and a 38.8% voting stake, the analyst added.

LG has "greater upside over time as the rest of the world has much more cable TV penetration (and triple-play penetration) upside versus DirecTV's more mature U.S. market," Joyce wrote.
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