UPDATE: Liberty Media To Separate Capital, Starz Units From QVC

Liberty Media Corp. announced over the weekend that it will split off two of its three tracking stocks in a complex transaction that aims to turn the shares tracking its largest business--home-shopping network QVC--into an asset-backed stock.

The company said it plans to split off Liberty Capital (LCAPA), which holds stakes in media companies like Time Warner Inc. (TWX) and Live Nation Entertainment Inc. (LYV), as well as Liberty Starz (LSTZA), the unit containing its premium cable-movie network, Starz Entertainment.

Liberty Interactive (LINTA), which tracks QVC and other interests, will then be converted into an asset-backed stock. Such stock holds more appeal to those investors who have questioned the merits of Liberty's complex corporate structure.

"An asset-backed Liberty Interactive will provide better transparency on Liberty's operating businesses, enable more efficient capital raising, and permit us to better pursue our strategic objectives, including acquisitions using stock," said Liberty's chief executive, Greg Maffei. "We also believe the split-off will be positive for the long-term credit outlook at Liberty Interactive."

Liberty Interactive shares were recently up 5.1% to $12.98 in recent trading on Monday. Shares of Liberty Capital were up 5.5% to $44.06, and shares of Liberty Starz were up 2.3% to $53.63.

Liberty Media, a conglomerate controlled by cable mogul John Malone, has been noted for its use of tracking stocks, which lack the full ownership qualities of asset-backed equity investments. The company is also known for engaging in complex financial transactions, often partly motivated by tax considerations.

Morgan Stanley analyst Ben Swinburne said the planned transaction amounts to "a vote of confidence in the stability of QVC," which has suffered in recent years amid a consumer-spending slowdown. He estimates that investors place a 5% to 15% discount on tracking stocks from the intrinsic value of the underlying assets they track due to their complexity.

"The proposed transaction would likely remove this discount over time," said Swinburne.

Maffei said on a conference call with analysts that the transaction could reduce the discounts priced into all three of its tracking stocks due to "some belief by the marketplace that ultimately we are moving to reduce complexity and increase transparency across all our stocks."

The company said it plans to complete the spinoffs, which are expected to be tax-free, by around the end of this year or early in 2011 after receiving shareholder and regulator approvals.

Under the terms of the transaction, Liberty Capital and Liberty Starz shares will be exchanged for shares in a newly formed company, Newco. The common stock of Newco will be divided into two tracking-stock groups. Newco Capital shares will track assets that are currently attributed to Liberty Capital, while Newco Starz shares will track assets attributed to Liberty Starz.

-By Nat Worden, Dow Jones Newswires; 212-416-2472; nat.worden@dowjones.com

Liberty Media Corp. - Liberty Cap Class A Common Stock (MM) (NASDAQ:LCAPA)
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