Filed by Liberty Media Corporation
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-6 of the Securities Exchange
Act of 1934
Subject Company: Liberty Media Corporation
Commission File No.: 001 - 33982
Excerpts from the Transcript of the
Liberty Media Corporation Conference Call
held on December 17, 2008
Doug Mitchelson
-
Deutsche Bank - Analyst
Thanks.
Good morning, everyone. Thanks for dialing into the call. Im Doug Mitchelson,
media analyst at Deutsche Bank. Im very pleased that the President and CEO of
Liberty Media Corp, Greg Maffei, has agreed to spend some time with us this
morning to discuss the Liberty Entertainment split-off transaction and recent
events at Liberty. Thank you very much, Greg.
Courtney
Ehrlich
-
Liberty Media Corporation - IR
Perfect.
Thanks, Doug. The following presentation includes forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995,
including the statements regarding our expected split-off of a majority of the
assets and liabilities currently attributed to the Liberty Entertainment Group.
These
forward-looking statements are based on managements current expectations and
assumptions, which are inherently subject to uncertainties, risks and changes
in circumstances that are difficult to predict. Actual results could differ
materially from those expressed or implied by such forward-looking statements.
These forward-looking statements speak only as of the date of this presentation.
Liberty
expressly designed any disclaims any obligation or undertaking to disseminate
any updates or revisions to any forward-looking statement discussed herein to
reflect any change in Libertys expectations with regard thereto, or any change
in events, conditions or circumstances on which any such statement is based.
Doug Mitchelson
-
Deutsche Bank - Analyst
Great.
So we have got 30 minutes of Gregs time. So lets dive right in. Greg, did you
want to start with an overview of the thought process behind the latest
split-off resolution?
Gregory Maffei
-
Liberty Media Corporation - President and CEO
Sure.
You know, I think if you look back, this is kind of the continuing evolution of
a thought process we went through that began last summer when we announced the
split off of LMDIA. When we got to the events of September and October,
which obviously changed some of the credit market indicators, which changed a
lot of what went on in the equity markets as well, we had to pause and
reevaluate that on our earnings call. In October, we made that announcement
that we were uncertain as to timing, but that we were still working towards it.
Last
week, at one of Dougs competitors conferences, I indicated we were still
working towards it. And then on Friday, our Board approved a modification to
our original plan, which effectively takes the bulk of the Liberty
Entertainment assets, the DirecTV stock, our interest in GSN and FUN
Technologies and our interest in the three regional sports networks, and
proceeds with a split-off of those three groups of assets; with the idea being
that the primary source of the discount we have to the DirecTV stock will
hopefully and the bulk of the value will be fully recognized there.
But
it also leaves behind other assets that are generating cash flow, in the case
of Starz or the majority of the cash likely in LMDIA will stay behind to
provide additional credit support and additional support to the equity holders
of LINTA and LCAPA.
Doug Mitchelson
-
Deutsche Bank - Analyst
So as
we look forward, what are the next steps in the process to the split-off and
the timing, do you think?
Gregory Maffei
-
Liberty Media Corporation - President and CEO
Well,
I think we are pretty much on the same set of things we needed to get done
before, which is seek a private letter ruling from the IRS, which we have a
high degree of confidence. But obviously, we are dependent upon their timing
and process.
File
with the SEC a registration statement. We will probably need, given the timing
of that, to drop in year-end financials. We can file in advance but our
financials will go stale, and we will need to drop in the updated financials.
And then we will need an LMDIA shareholder vote, not from the other two
trackers, but from that one. That will be, as the registration statement is
approved and we have something to present them with in the form of a proxy
vote.
Doug Mitchelson
-
Deutsche Bank - Analyst
So it
sounds sort of like early to mid-March at the earliest?
Gregory Maffei
-
Liberty Media Corporation - President and CEO
Yes,
I think that would be a quick timeframe. It could take, anywhere from today to
four to six months, and obviously were pushing for the shortest possible.
Doug Mitchelson
-
Deutsche Bank - Analyst
And
the fact that you had an initial process starting in September with L.
Media, you have to sort of restart from scratch, given the change?
Gregory Maffei
-
Liberty Media Corporation - President and CEO
Well,
a bunch of things changed in terms of were obviously doing some of this work
even before we made the announcement. A bunch of things changed about how the
financial statements are configured, what the ultimately the proxy says. So
there are, what the IRS letter says there are still things that change.
Doug Mitchelson
-
Deutsche Bank - Analyst
As
you sit here today, is the Board anticipating anything unusual or different in
corporate governance for the split-off entity than we have seen from Liberty
before?
Gregory Maffei
-
Liberty Media Corporation - President and CEO
No. I
would think that we will replicate the AB structure. We will probably have
entirely the same management team. John will be chairman of both entities. I
will be CEO of both entities. I think it would be practically business as usual
going forward.
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Doug Mitchelson
-
Deutsche Bank - Analyst
I
know one of the concerns by shareholders recently has been that the split-off
ultimately might not be able to be contemplated because of issues related to
the hold co. notes. Obviously, you have sort of reached internally, a belief
that the coverage on the hold co. notes is sufficient despite the split-off.
That is obviously a fair statement.
Gregory Maffei
-
Liberty Media Corporation - President and CEO
Yes,
I think some of the considerations that are around this were a question of
substantially all. I think the initial split-off proposed back in August was
more radical in the sense of splitting off more assets than the modified
split-off proposal. Weve received no real push-back on the substantially all
question from bondholders. Were very confident of our position that this is
not a substantially all. As I said, the modifications we have made as of
Friday, reduced the substantially all question not increasing, because of our
efforts to leave assets behind, realizing that of the consolidated revenue and
EBITDA, the vast, vast majority of it was staying behind already, and we are
only increasing that by adding Starz.
So we
have added both to the revenue and EBITDA issues where we had very, very high
levels of comfort that we were never in doubt on substantially all. We had high
levels on the assets and we are adding to that as well. So by all measures,
this is a stronger transaction. We werent worried about substantially all to
begin with and we only have a high degree of confidence now.
Doug Mitchelson
-
Deutsche Bank - Analyst
Can
you talk through how you are thinking about the capitalization of the split-off
entity? What should we call it? Is it Liberty is it LEI or is it going to be
the new L. Media?
Gregory Maffei
-
Liberty Media Corporation - President and CEO
Well,
we have not spent too much time worrying about the name for it but LEI is fine
for this discussion. I think somewhere down the road, it really ought to be
Liberty Entertainment but by charter, that is the name of the one staying
behind. So we would have to shift that around in a vote. But we can call it LEI
for the moment. We can call it, for this call, we can call it Liberty Direct
and Liberty Starz. Whatever works just for this. We will come up probably with
more certain nomenclature as time goes on.
As to
the capitalization to what is being split off, it has only the debt, which is
just under $2 billion, tied to our incremental purchase of DirecTV stock. The
78 million shares or roughly at the time, 7%, now closer to 8% of the stock
that we bought back in the spring that we bought in that collared structure,
borrowing against the put side of the collar, very conservatively financed
given that and very attractively financed at the rates. That is the only debt
this entity will have.
Doug Mitchelson
-
Deutsche Bank - Analyst
And
since the entity wont have much if any in the way of operating cash flow, how
do you sort of cover the interest expense against the debt and what is the
strategic outlook do you think for LEI?
Gregory Maffei
-
Liberty Media Corporation - President and CEO
Well,
the interest is accruing. We have room under the collar to accrue for quite a
bit. We have some cash that will go that will help settle this out. Theres
some cash flow limited out of GSN/FUN and the RSNs. But ultimately, were going
to have to either work on another method to reduce that debt that is against
the put side, by either raising debt against the assets or potentially in some
combination with DirecTV, that will be part of the that will be resolved or
in some other kind of transaction; or ultimately, potentially, worst case
selling DirectTV shares.
Realizing
that of course what has been happening is as DirecTV has been buying back stock
at an aggressive rate, which we absolutely applaud; and that has taken all our
interest in DirecTV from originally the 41% when we struck the deal. Actually,
when we were discussing the deal, it was like mid-30s. As shares were
repurchased by DirecTV at the time when we struck the deal, it was 41%. We
bought the initial incremental 7%; that got us to 48%. We are probably theyve
not yet reported, but just given what they are doing, were probably on the
range of 53%, 54% on our way to 55% of the economics, when they report. We will
see.
3
Our
preference would be to maintain as much as possible but if we were required to
sell some shares to provide liquidity, we have substantially increased our
ownership. I dont think that is what is going to happen. I think we will
service the debt and refinance the debt in other means but that is the
worst-case scenario.
Doug Mitchelson
-
Deutsche Bank - Analyst
So I imagine you have some discussions with
the DirecTV management and board at the time of the revised split-off
announcement. Any particularly noteworthy reaction from ?
Gregory Maffei
-
Liberty Media Corporation - President and CEO
No,
candidly, we didnt. But, really, this was not I mean we have had discussions
with them all the time, but we were not necessarily clearing any modified
split-off with them. We know what their issues are, we know what their desires
are, and I think we acted in a way that will be viewed positively by them. But
it wasnt cleared with them or anything like that.
Doug Mitchelson
-
Deutsche Bank - Analyst
It
seemed to be one of the issues was the valuation of Starz, which is sort of off
of the table now. What would you say sort of the remaining issues might be
under the revised plan?
Gregory Maffei
-
Liberty Media Corporation - President and CEO
Well,
I think if you look, you asked about the strategic alternatives available for
this split-off entity. I think they remain the same. The potential exists for a
combination with DirecTV and that probably has gotten easier because, as you
point how, Starz is an asset in which there is a range of valuation potentials.
But
putting that aside, even if it wasnt an argument about Starz, just reducing
the assets other than the DirecTV stock, which are in the entity, makes it
easier, because DirecTV stock is the one thing that its easiest to talk to
DirecTV about in terms of valuation. And there is a price quoted every day in
the marketplace versus arguing about private entity values.
So
that combination gets easier on a valuation basis. The issues around
combination with DirecTV that still potentially remain around governance and
voting are there. Those have been real issues from the beginning. Not to say
theyre insurmountable, but they are issues that have to be addressed.
But
other alternatives and strategic alternatives, which are available to us with
the spun entity, include potentially somewhere down the road as the credit
markets improve, where we find a partner or other means to finance it, we could
tender for the balance of DirecTV or offer to merge with DirecTV in some
denomination of stock and cash. Or, alternatively, keep it as a separately
trading entity and somewhere down the road decide that we want to seek a
liquidity pass for our shareholders in the hold and look for a transaction to
sell that split-off entity, which is again, primarily the near control position
of DirecTV; probably leads to a sale of DirecTV, but is done, really driven by
us, or at least forged the path forged by us because we have such a large share
of the stock.
So
all those options remain, and all those options are enabled, made easier, by
the split-off of this DirecTV stock.
Doug Mitchelson
-
Deutsche Bank - Analyst
So I
think this is clear under sort of the reverse Morris Trust and the tax-free
split-off nature that we are discussing. But just sort of as a point of fact.
At this point, you could begin discussions with DirecTV, because it doesnt
take too much effort to come up with a structure where you could do a reverse
Morris Trust transaction with them. But you really could not begin to have
conversations with interested third parties strategically like in AT&T if
they were interested because that could hurt the tax-free nature of the
split-off?
4
Gregory Maffei
-
Liberty Media Corporation - President and CEO
Well
I would start by saying Im not a tax lawyer, and gosh, Liberty has got plenty
of those.
But
my understanding would be that any combination where we ended up with 51% of
the vote in value would, under a reverse Morris Trust, would be a transaction
that is not tainted in any way and could be proceeded with and discussed now.
And I cant imagine any transaction we would do where we did not end up with
that, in the case of any kind of DirecTV combination.
But,
the question of whether some buyer would wish to have a discussion and how they
would view it as tainted, I think you are right. Ultimately that liability is
theirs, because it is going to be a public entity, no one would step behind it.
So it would be the purchasers liability and I think most purchasers are going
to be very leery of having those discussions until there is a freely traded
entity. Weve worked very hard to make sure we have not tainted in any way in
our minds that, realizing it is, of course, the buyers ultimate judgment and
ultimate liability.
Doug Mitchelson
-
Deutsche Bank - Analyst
Its
a bit of an odd situation where you and John and the third board member could
be having discussions over at DirecTV with a strategic partner but could not be
having them at Liberty. But I imagine you find ways to weave your way through
the tangled path.
Gregory Maffei
-
Liberty Media Corporation - President and CEO
Without
things, what would life be? It wouldnt be interesting, right?
Doug Mitchelson
-
Deutsche Bank - Analyst
Yes,
thats right. So if there was a potential future transaction to be had, Im
curious if you know offhand, would the buyer of LEI step into your voting
agreement with DirecTV or would the voting agreement then terminate?
Gregory Maffei
-
Liberty Media Corporation - President and CEO
I
think there are a couple of issues here. One is our the charter arrangements,
to which we have ceded, that I think any buyer would have to step into. And
then, similarly, the voting arrangement we have had on the subsequent
purchases, we are effectively freezing our vote on the subsequent purchases of stock
by DirecTV. I think a buyer would likely have to cede to that as well. But
those would all be open issues I think to be negotiated really with the DirecTV
board, ultimately.
Doug Mitchelson
-
Deutsche Bank - Analyst
Okay.
So lets switch over to the stub piece, old L. Media, which (multiple speakers)
to be a very clean entity with just Starz and cash.
Gregory Maffei
-
Liberty Media Corporation - President and CEO
(multiple
speakers) the equity in WildBlue, our roughly 37% interest.
Doug Mitchelson
-
Deutsche Bank - Analyst
And
the sort of 37% interest in WildBlue. My view is sort of the obvious would be
at that point it would make sense to match the three trackers back together to
be able to freely move capital around, given where the hold co. notes are
trading. I imagine you would not necessarily want to confirm that today. But
what do you see as the strategic options for the holdover piece?
5
Gregory Maffei
-
Liberty Media Corporation - President and CEO
I
think we would say that just the way weve intended to provide investors choice
and then honor that choice by letting them hold the Liberty Interactive stock,
which is primarily focused around video and eCommerce; or the Liberty
Entertainment stock, which is primarily focused around media properties; and
then really left with the rump in Liberty Capital, which is kind of a different
story. We would try to honor that choice as much as possible. The fact that
these incremental assets remained for credit support and other alternatives
always exist in a tracker, and we would note that.
But I
certainly dont think it is our intention or plan to re-merge or smush the
entities. We would do as much as possible, do what we have tried to do here;
which is to say, look, we are providing the cleanest alternatives available in
light of what investors chose and the current market conditions.
Doug Mitchelson
-
Deutsche Bank - Analyst
So
then, what do you feel the options are for Starz and the cash that is left
over?
Gregory Maffei
-
Liberty Media Corporation - President and CEO
Well,
I think Starz is doing incredibly well. It will be a very interesting
opportunity for investors to begin with. Starz has currently taken after the
recut of our Comcast contract, Starz bottomed out at about $175 million, $180
million of EBITDA. Did about $260-ish million last year, on its way to $300
million this year, and I suspect it will be significantly better than
double-digit growth, you know, mid-teens growth next year. So I think it is a
very attractive entity on its own. If it trades poorly, theres a heck of a lot
of cash and no debt sitting at that entity, I think it will be quite an
attractive stock potentially.
Doug Mitchelson
-
Deutsche Bank - Analyst
And then
I mean, I guess what it comes down to is we will see it when we see it, but it
comes down to you have sort of excess capital, at least as the tracker stocks
work, excess capital allocated to the remaining L. Media and some leverage at
LINTA and some leverage at LCAPA and different access to capital at those two
entities.
Gregory Maffei
-
Liberty Media Corporation - President and CEO
Well,
but, Doug, I think if you look at it, you will have three entities with
different profiles. Quite a lot, no debt other than the allocated or the
proportional tracker debt, proportional being in the LLC but no direct debt at
the Starz Entertainment and cash entity, the old LMDIA stub. Very long-term
debt with very low coupon in the form of the exchangeables at LCAPA and quite a
lot of cash and near cash in the form of things like the Sprint derivative.
So
really in a big excess cash position at Liberty Capital and in a tighter cash
position but with quite a lot of potentially salable assets answer till quite a
lot of even in our sort of negative scenarios, youre looking at free cash
flow, after interest, after bank debt interest and after taxes, of probably
$500 million. You know, we havent completed a budget, we havent done that.
But if you just sort of project, theres a lot of free cash flow at Liberty
Interactive. There isnt as much cash but there is, as I mentioned, these
assets, which we believe are readily salable and are attractive.
So of
the three, you could argue that Interactive has the least free cash but also
has the most cash flow to devote. So I think all of them have relative
financial strength of different sorts.
Doug Mitchelson
-
Deutsche Bank - Analyst
Right,
and that makes sense. Ultimately where I was going with the question is, it is
sort of obviously unclear because this was just announced, what the strategy
will be at the holdover L. Media. You, because of your excess capital position
on paper could be conservative because of the overall current economic and debt
environments. You could be pursuing acquisitions because you have capital at
that entity and deals might be cheap or you could pursue share repurchases. So
I was just
6
Gregory Maffei
-
Liberty Media Corporation - President and CEO
I
think your points are right; we have all flexibility around those, and we have
the potential to find ways to reduce the hold co. notes if they trade poorly as
they have. As you know, we tendered for a bunch and I think that opportunity to
use capital to tender for more exists.
QUESTION AND ANSWER
Doug Mitchelson
-
Deutsche Bank - Analyst
That
actually reminds me. Can you explain how the stock price mechanism, where the
trackers could be put back together, would shift as a result of this announcement?
With the split-off, obviously, the stock price for L. Media is going to change
through the redemption process. How does this mechanism work post split?
Gregory Maffei
-
Liberty Media Corporation - President and CEO
I
really dont think it will change in that sense, Doug. Because you will see at
some point we will have to start trading in the LMDIA stub, and that potential,
if it were to be recombined, would have the same issue of 60-days trailing
average could be merged. There are other all scenarios in which it could be
merged as well looking at the Board, but that is built into the charter.
Doug Mitchelson
-
Deutsche Bank - Analyst
Okay.
And because this is a redemption, what will happen is some amount of the L.
Media value now trading at $18.35 the stub will trade at a lower price?
Gregory Maffei
-
Liberty Media Corporation - President and CEO
Yes.
Now we may, just looking at an effective of reverse split on that LMDIA stub, I
think there are roughly 530 million-ish shares outstanding under in Liberty
Entertainment, LMDIA today. Once youve split out quite a lot of that value,
you will see a dramatic drop in the old LMDIA stock, whether we want to have a
reverse split to have that trade at a higher value, we will see. But obviously
theres going to be some redemption of capital because a lot of the capital, a
lot of the assets are going off in the split-off.
Additional
Information
Nothing in this transcript shall
constitute a solicitation to buy or offer to sell shares of Liberty Media stock
or stock in the new public company. The offer or sale of shares of the new
public company in the proposed split-off
will only be made pursuant to an effective registration statement.
Liberty Media stockholders and other investors are urged to read the registration
statement to be filed with the SEC including the proxy statement/prospectus to
be contained therein, because it will contain certain important information
about the transaction. A copy of the proxy statement/prospectus, once filed,
will be available free of charge at the SECs website (
http://www.sec.gov
).
Copies of the proxy statement/prospectus and the filings with the SEC that will
be incorporated by reference in the proxy statement/prospectus can also be
obtained, without charge, by directing a request to Liberty Medias Investor
Relations, Telephone: (720) 875-5408.
Participation
in Solicitation
The directors and executive
officers of Liberty Media and other persons
may be deemed to be participants in the solicitation of proxies in respect
of proposals to approve the split-off. Information regarding the directors and
executive officers of Liberty Media, those expected to serve as directors and
executive officers of Liberty Entertainment and other participants in the proxy
solicitation, together with the description of their respective direct and
indirect interests, by security holdings or otherwise, will be available in the proxy materials to be filed
with the SEC.
7
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