LMGA; LSATA; LDIG: Liberty Media Contributes Gemstar Assets to News Corp. and Sky Global - What's Next?
(I believe the broker that published this report is Ladenberg Thalman. Thanks goes to whitephosphorous off RagingBull.com for uncovering this one)
* News Corporation and Liberty Media Corporation announced yesterday a
series of transactions in which Liberty Media will acquire 121.5
million more shares of News Corporation and stock in its pre-IPO stock
subsidiary, Sky Global Networks, scheduled to go public by year-end.
* Under the terms of the transaction, News Corporation will acquire
Liberty Media's 21 percent interest in Gemstar-TV Guide International,
increasing News Corporation's ownership to 43 percent and making it
the largest shareholder in the world's leading provider of interactive
programming guides and the popular TV Guide magazine.
* According to the specific terms of the deal, Liberty Media has
agreed to transfer 80 percent of its interest in Gemstar-TV Guide to
News Corporation in exchange for approximately 121.5 million ADRs
representing 486 million News Corporation preferred limited voting
ordinary shares, and the company's remaining 20% interest in Gemstar
for equity in Sky Global Networks.
* Separately, Liberty has also pledged to purchase $500 Million worth
of Sky Global stock when it goes public later this year, for another
approximate 1% equity in that entity.
* Liberty's acquisition of the News Corporation ADRs will increase its
interest in News Corporation to approximately 18 percent of the
company's outstanding equity, making it the largest non-voting
shareholder.
* Liberty Media will also exchange its interests in the Sky Latin
America platforms, Sky Brazil, Sky Mexico and Sky Multi-Country
Partners, to Sky Global Networks for additional shares of Sky Global's
class A common stock. These Class A shares will be contributed to
Liberty Satellite LLC, the 90/10 joint venture between Liberty Media
and Liberty Satellite
* We are maintaining our Strong Buy rating on LMGA and our Buy rating
on LSATA, two stocks currently on our focus list.
* Below is our analysis, of the aforementioned transaction and our
assessment of potential future transactions involving Liberty Media
and News Corp.
Transaction - Step 1:
1. First, Liberty Media Group transfers80% of its Gemstar equity
(GMST) valued at market at $5.10B for 121.5 million NWS ADRS,
worth $6.864B at yesterdays market close. Net Difference= $1.76B due
to yesterdays market movements.
Then, LMGA transfers its remaining 20% in Gemstar to News Corp. in
exchange for pre-IPO equity in Sky Global Networks worth $1.27 B
(based on the market price of Gemstar. Result: Net to LMGA = $1.76 B
on the transaction, or $0.65 per share. (Remember, however this
could net to Zero given that the equity value of Sky Global is
currently imbedded in NWS equity.)
Transaction - Step 2
Liberty media transfers its interests in its various Latin American
satellite assets to Sky Global for equity in that entity. We believe
that these assets were valued at $2.5 billion in the transaction,
making Liberty Satellite LLC's 10% worth approximately $250 million.
Note, Liberty Satellite LLC is the entity held 89.41% by LMGA and
10.59% by LSATA.
III. Transaction - Step 3
Liberty also has agreed to invest $500 million in cash into Sky Global
for equity in that entity. This brings the total equity held by LMGA
related entities in Sky Global to a over $2 Billion. Note: This
will all end up in LSATA at some point.
NEXT PHASE: STRATEGY
The above is a pictorial of the result of all the aforementioned
transactions.
V. Now, Strategy: Phase I
Above is our assessment of a possible purchase group for GMH. Note,
we don't include DISH because we strongly doubt that any bid by
Echostar would get anti-trust clearance.
VI. Strategy: Phase II
*Purchase Group exchanges GMH equity for Sky Global Equity
* Sky Global Equity helps new network launches by these entities
* VII. Strategy: Phase III
Liberty Satellite, LLC ceases to exist, LSATA and LMGA are
compartmentalized and focused on building what they have accumulated.
Following this, other possible actions include the following:
* Possibility of UPC putting Austar into either LSATA or Sky Global
for increased equity
* NMS Listing of LSATA
* LMGA consolidates satellite assets into LSATA
* Vogel runs DirecTV for Sky Global Networks
* Liberty Satellite, LLC dissolves = LMGA + LSATA = all that exist
* COMPARTMENTALIZATION by PRODUCT LINE
Sky Global IPO Post GMH
* Full worldwide coverage
* Higher valuation on IPO
* DTV used to fun other international satellite ventures
* Investors more confident sky Global will not need to access public
market in near term
* ADAVANTAGES TO BOTH Liberty and News:
* Both companies more platform agnostic with respect to global
programming distribution
* Guaranteed content distribution for new networks
* Tremendous interactive opportunities with Open/Liberty Digital
* Best content/distribution entities in the world with head start in
interactivity - THE NEXT HOLY GRAIL (From our perspective for the
media industry.) |
