After Delaware court ruling, Liberty Media split-off to occur on Friday; What does it mean?

Tom Paine

Liberty Media Corp announced yesterday that the Delaware Supreme Court had ruled in its favor in turning down an appeal of a previous Delaware Chancery Court ruling denying a challenge to its long-planned split-off, clearing the way for the move to be completed on Friday.

Everything Liberty does under Chairman John Malone might seem rather confusing to to some; his corporate structure and transactions are often geared towards maximizing tax advantages, among other goals. Liberty has been a constantly evolving investment vehicle. Malone, who has some Philadelphia connections (he was a top exec at Horsham-based General Instruments early in his career and his son Evan is founder of Philly's NextFab Studio and is also on the board of Liberty Media), is not reluctant to sell assets at the right price, and when the tax implications are favorable, then redeploy funds into what he sees as a more favorable opportunity.

Liberty Media before the split-off has consisted of three "tracking stocks"; Liberty Interactive (LINTA), consisting primarily of West Goshen Township-based QVC and some other smaller interactive eCommerce companies; Liberty Capita (LCAPA), which has interests in several media companies and also includes Berwyn-based wireless locator TruePosition and the Atlanta Braves; and Liberty Starz (LSTZA), which holds the movie channels that operate under that name. Tracking stocks are investment vehicles which reflect the value of a company's assets, but the shares do not actually represent legal ownership of part of those assets. Confusing, uh?

When the split-off is completed, Liberty Media will be renamed Liberty Interactive. Liberty Interactive (including QVC), will now be an asset-backed stock (shareholders will actually own part of the assets) as opposed to a tracking stock. Liberty Capital and Liberty Starz will continue to be tracking stocks under a new Liberty Media parent.

There will be a lot of cash (up to $10 billion), although its not clear exactly where that will be allocated and some will be used for share buybacks. The split-off opens the door for a number of rumored or possible plans to move forward:

• Acquisitions and investments: "We've been pretty frozen by this split-off interregnum," Malone was quoted as saying at Liberty's annual shareholder meeting earlier this month by Multichannel News. "You can probably expect a lot more activity by us post the split-off".
• Liberty Interactive may move to buy the roughly 70% of HSN (parent of Home Shopping Network) it does not own and integrate it with QVC.
• Rumors have been floating around that Liberty Starz could be acquired, with Time Warner named as one possibility.
• I could see some possibilty of a move with TruePosition, which doesn't particularly fit with other types of Liberty interests and could fetch a nice price because of the wireless IP goldrush.
• You could also see some movement with the Atlanta Braves, if a good buyer is out there. Liberty acquired the Braves as part of an asset trade with Time Warner, and nobody has believed it has a long term strategic interest in it.

Beyond that, QVC could benefit from an increased strategic emphasis on building a larger eCommerce business around it.

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