DirecTV, Liberty Entertainment to merge

Carey to remain CEO, Malone chairman

NEW YORK--Satellite TV giant DirecTV Group and Liberty Media's Liberty Entertainment will combine, the companies said Monday.

John Malone's Liberty Media controls a large stake in DirecTV, and a merger of some sort with Liberty Entertainment, which houses the stake, has been expected. Liberty had previously announced plans to split off Liberty Entertainment, and the merger is likely to happen after that split.

The deal combines DirecTV with the Game Show Network, FUN Technologies and three regional sports networks that are part of Liberty Entertainment.
Not included in the split-off will be the following current Liberty Entertainment group assets: Starz Entertainment, 37% of  broadband service provider WildBlue, PicksPal and Fanball.
They will be renamed "Liberty Starz," an entity whose common stock is expected to be listed on NASDAQ under the symbols LSTZA and LSTZB.

While a deal had been expected and executives had previously said they were exploring it, details were unclear until Monday morning. Among the main questions have been governance issues, such as what stake and type of stock Malone would hold.

Malone, his wife and associated trusts will hold shares entitling them to approximately 24% of DirecTV's total voting power, while their economic stake amounts to only 3%. The Malones, who will mainly hold special Class B stock in the new entity, have entered into an agreement that, among other things, requires them to vote their shares in support of the transaction and agree to certain limitations on their rights to sell or acquire shares. DirecTV has the right of first refusal should the Malones decide to sell their stock.

"We are pleased to announce this transaction as it will rightly put the control of DirecTV in the hands of DirecTV shareholders," said DirecTV president and CEO Chase Carey, who will run the combined company and keep his titles. "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."
Malone will serve as chairman of DirecTV.

In a conference call, Carey said DirecTV is paying a low single digit premium in the deal and will take a charge of $300 million-$400 million for it. He said the premium was appropriate and promised the combination would start being "marginally accretive" next year.
Carey also said DirecTV would have preferred a single class of stock, but said the dual class structure aligns the interests of Malone and other shareholders. He also described Malone as "a positive force."

Liberty president and CEO Greg Maffei also touted the benefits of the agreement. "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," he said.

The companies anticipate that the split-off will occur before the merger, which is expected to be completed in the fourth quarter.
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