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Malone Not Keen on 'Cash-Rich Split-Off’

4/03/2005 8:00 PM Eastern

New York— News Corp. chairman Rupert Murdoch may have to wait a while before getting back the 17% voting stake in the media giant owned by Liberty Media Corp.

Liberty chairman John Malone told an industry conference that he would prefer not to dispose of the interest in a cash-rich split-off.

Most analysts have anticipated that Malone — who boosted his voting stake in News Corp. late last year from 9% to 17% by swapping non-voting shares with Merrill Lynch International — would sell the voting shares back to News Corp. for cash and a small operating asset.

Liberty has used the cash-rich split-off structure in the past, and it seemed to most to be the most tax-efficient way for both Liberty and News Corp. to do a deal.

POISON PILL PONDERING

But at the Banc of America Securities Media Telecommunications & Entertainment conference here last Tuesday, Malone said he’s eyeing another route.

“I’m less interested in getting redeemed out in a cash-rich [spin] with a set of assets that we may or may not have interest in or have much growth potential,” Malone said. “I’d prefer to hold the position indefinitely and enhance the position, or alternatively, find a way to distribute the position directly to Liberty shareholders.”

Malone also said that he would like to increase his voting stake in News Corp., but a “poison pill” the media giant initiated in December would make it extremely difficult for any individual to increase its voting interest in News beyond 15%. That poison pill expires in November, but sources familiar with the situation said that it is likely News Corp.’s board of directors will renew the measure for at least another year.

Murdoch, who was reportedly incensed that Malone increased his voting stake in the media giant, has said that he would not part with any assets News Corp. considers to be essential. Some analysts have speculated that either the National Geographic Channel or Fox Movie Channel could be transferred to Liberty in a cash-rich spin.

STATUE OF MALONE?

Malone admitted that his decision to buy the News Corp. voting stake caught Murdoch unaware, but added that his best-case outcome would be to deliver non-voting News Corp. stock into the hands of Liberty shareholders and the voting stake into the lap of the Murdoch family.

“If I could pull that off, Rupert would build a statue of me,” Malone joked.

Malone noted that he is not opposed to a cash-rich split-off, just that he doesn’t believe News Corp. would part with an asset in which Liberty would be interested. He added that time is running out for the ability to do a cash-rich spin — changes in the federal tax laws which would eliminate that loophole are expected to take effect on Oct. 1.

“The timing would have to be quick and the generosity from News Corp. would have to be compelling,” Malone said. “Rupert’s a great guy, but I’ve never found him to have compelling generosity.”

UPDATE FROM NEWS

News Corp. executive vice president of investor relations and corporate communications Gary Ginsburg, speaking at the Banc of America conference last Wednesday, said that the company has had only one preliminary conversation with Malone about the voting stake in December.

“We’ve had no talks since then,” Ginsburg said. “We are hopeful in reaching the most beneficial conclusion with Liberty. We have no comment beyond that.”

Malone also shed some light on Liberty’s plan to spin off its 50% interest in Discovery Communications Inc. and its 100% interest in Ascent Media Group in a separate publicly traded company called Discovery Holdings.

NO DISCOVERY DEAL YET

Key to that spinoff would be the participation of Discovery’s other two partners — Cox Communications Inc. and Advance/Newhouse Partners, each of which own a 25% interest in the group of networks.

While Malone said that he has been talking to both Cox and Advance/Newhouse, no deal has been reached.

“We came to the conclusion, after several years of offering obscene amounts of money to Cox and Newhouse to buy their stakes and them having no interest, that we could no longer carry Discovery as a 50% unconsolidated subsidiary, with Discovery completely constrained in terms of its ability to grow by the fact that its quite leveraged and has no access to capital,” Malone said.

With a public currency, Discovery will be able to go out and acquire other networks, he added.

“We can collectively set Discovery free to more aggressively drive growth,” Malone said.

September