News

Liberty Eyes a Compromise

1/11/2008 7:00 PM Eastern

Liberty Media CEO Greg Maffei last week told an audience at an investor conference that the company has made a proposal to the U.S. Department of Justice regarding approval of its acquisition of a controlling stake in DirecTV Group, but was reluctant to set a time frame for when a deal may be approved.

Liberty agreed to part with its 19% voting stake in News Corp. in exchange for News’s 40% interest in DirecTV, three regional sports networks and cash in December 2006. The deal was at first expected to close by the end of 2007, but has been held up at DOJ and at the Federal Communications Commission.

LIBERTY GLOBAL AT ISSUE

Maffei said that the main objection expressed by the Justice Department regards Liberty chairman John Malone’s personal equity stake in Liberty Global, which owns a small cable system in Puerto Rico. Malone is also chairman of Liberty Global.

Because DirecTV Latin America also provides satellite-TV service to the island, the nation’s primary legal enforcement agency is concerned that by gaining control of DirecTV, Liberty will effectively control two of the three competitive television service providers there — Dish Network is the third.

At the Citigroup Entertainment, Media & Telecommunications conference in Phoenix last Wednesday, Maffei said that Liberty has made a proposal to the DOJ that would limit the information exchange between Malone, Maffei and Liberty Global and DirecTV, effectively removing them from any decision-making regarding television service in Puerto Rico. Liberty has put forward a similar proposal at the FCC in recent weeks, according to agency records.

“There have been attempts to negotiate protections around information flows to ensure that there’s no inappropriate price action and the like, that would keep Malone and myself and others who are involved away from information flows and decision making. We’ll see whether that’s successful. It’s been frustrating. The pace has been glacial.” Maffei said.

The Liberty-DirecTV-News Corp. transaction has sat at the FCC for 324 days, despite the agency’s informal policy of deciding mergers within 180 days. Maffei said that the agency’s concerns have mainly to do with the delivery of local broadcast stations into their local markets, which he believes will not be a problem.

“I think it’s Puerto Rico and we’re very close,” Maffei said at the conference. “Whether it comes down to an information flow or whether it comes down to something more concrete like a divestiture plan for one or the other of the Puerto Rican businesses, that’s the end remedy. Other than that I believe there is literally a very, very, small chance this doesn’t get done.”

TV stations in North Dakota and Texas have urged the FCC to require DirecTV to initiate local TV service in their markets as a merger approval condition. Although the U.S. has 210 TV markets, DirecTV provides local signals in about 145 markets that include 94% of TV households. In the most rural markets, DirecTV has told the FCC that it plans to offer digital signals from local TV stations on a seamless, integrated basis but not via satellite — possible through a set-top connected to an over-the-air digital tuner.

A decision should come shortly, said Federal Communications Chairman Kevin J. Martin, in comments after a talk at the 2008 International Consumer Electronics Show this week.

MARTIN PROMISES ACTION

“I think that is probably something that we and/or the [Justice Department] will be acting on soon,” he said. “I think there have been some ongoing issues that we’ve been working with the companies about. We’ve been actively engaged with the companies on trying to address a few of the remaining concerns.”

But Maffei was hesitant to estimate just how long it would take for the deal to gain regulatory approval.

“It feels like [it will happen] in the next few weeks,” Maffei said. “But I’m afraid I might have told you that in December as well.”

Ted Hearn contributed to this report.

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