Liberty plans third tracking stock

Latest offshoot to focus on content, distrib'n; Q2 dips

John Malone's Liberty Media Corp. on Wednesday unveiled plans for a third tracking stock that will unite key content and distribution assets as it reported lower-than-expected second-quarter results for its Liberty Interactive Group, driven by weakness at home shopping juggernaut QVC.

Liberty Interactive Class A shares closed down 1.9% on Wednesday at $19.82 after setting a 52-week low of $19.24 earlier in the day. Liberty Capital Class A shares rose 3.2% to $115.27.

In a conference call, management cited sluggish consumer retail spending in the current economic environment and weakness in Japan and Germany as key reasons behind QVC's results.

Currently, the company has tracking stocks for Liberty Interactive and Liberty Capital Group. However, the latter soon will be split into two tracking stocks.

The larger one will be called Liberty Entertainment Group and will include most of the company's production and distribution assets. Specifically, it will include a controlling stake in DirecTV and three regional sports networks, Starz Entertainment, Starz Media, Fun Technologies, GSN and satellite broadband firm Wildblue Communications.

The second tracking stock will retain the Liberty Capital moniker and be a compilation of smaller stakes in companies.

Liberty president and CEO Greg Maffei said the reclassification should yield two advantages. "First, it will create a focused distribution and programming business in Liberty Entertainment," he said, adding that this should boost shareholder value and provide a stronger currency for possible acquisitions. "Second, the new Liberty Capital group will focus the complexity that contributes to our trading discount into a single, smaller group of assets that can be more effectively simplified over time."

Maffei said Liberty is considering numerous potential deals but declined to mention specifics.

Liberty Interactive reported second-quarter operating income of $244 million for QVC, a year-over-year gain of 1%. Revenue rose 4% to $1.7 billion.

QVC had "operational and market challenges" in Germany and Japan, while its U.S. operations grew more slowly than a year ago, with weakness in the jewelry category — because of product mix and rising gold and silver costs — and economic concerns a factor, the company said.

At Liberty Capital, Starz Entertainment saw quarterly operating income decline slightly, from $44 million to $42 million, as revenue fell 4% to $254 million. Hurting results was lower revenue from two cable operators that are renegotiating their carriage arrangements with Starz, company executives said, adding that they expect a new deal in the coming months.

"Our major goal in the coming months will be to complete new, mutually beneficial agreements with the two affiliates whose carriage contracts have expired," Starz Entertainment CEO Robert Clasen said.

Management said a swap of stock in Rupert Murdoch's News Corp. for DirecTV, the three sports networks and cash likely will close in September or October.