Sept. 15 (Bloomberg) -- Liberty Media Corp. may swap its 16 percent holding in Rupert Murdoch's News Corp. for a 38 percent stake in DirecTV Group Inc., the largest satellite television company, Merrill Lynch & Co. analyst Jessica Reif Cohen said.

Liberty Chief Executive Officer Greg Maffei discussed unwinding the company's investment in News Corp. yesterday at the Merrill Lynch & Co. investor conference in Pasadena, California, Reif Cohen wrote in a note to investors. She valued Liberty's stake in News Corp. at about $10 billion.

``We believe Liberty has a wide variety of options including an outright swap for an operating asset or a cash-rich transaction featuring a large cash component,'' Reif Cohen said.

The sale of News Corp.'s controlling interest in DirecTV, worth about $9 billion, would reverse Murdoch's entry into the U.S. satellite-TV business three years ago. For a tax-free deal, News Corp. has to contribute a business owned for at least five years, Reif Cohen said.

Liberty, controlled by John Malone, and News Corp. have been in talks for almost two years. The negotiations picked up momentum recently, and Murdoch would like to resolve the matter before the New York-based company's Oct. 20 shareholder meeting, CNBC's David Faber reported yesterday.

Shares of Liberty Capital tracking stock rose 11 cents to $86.46 yesterday in Nasdaq Stock Market composite trading. DirecTV fell 64 cents to $19.19 on the New York Stock Exchange. Class A shares of News Corp. gained 20 cents to $18.86.

News Corp. spokesman Andrew Butcher, Liberty Media head of investor relations John Orr and DirecTV spokesman Robert Mercer all declined to comment.

`Makes Sense'

DirecTV, based in El Segundo, California, has 15.5 million customers. It would fit with Englewood, Colorado-based Liberty's assets such as the QVC shopping channel, said analyst Steve Mather of Sanders Morris Harris Inc. in Los Angeles.

``It makes sense for Liberty because it's involved in aspects of multichannel video distribution,'' Mather said in an interview yesterday.

DirecTV provides News Corp. a U.S. platform for its TV networks, including Fox and FX. News Corp. spent $6.6 billion at the end of 2003 to buy a controlling stake in DirecTV, adding it to satellite companies owned in the U.K., Italy and Asia.

``It's odd that News would want to get rid of DirecTV, considering it's a nice jewel in their empire,'' said Mather, who rates DirecTV shares ``buy'' and owns them. ``It fits with Fox and with all their other businesses.''

Subscriber Growth

Profit at DirecTV almost tripled in the second quarter as the service increased prices. Subscriber growth trailed the company's expectations, Chief Executive Officer Chase Carey said on Aug. 8. Cable providers including Philadelphia-based Comcast Corp., the biggest in the U.S., are attracting customers with packages of services including digital phone.

In November 2004, Murdoch installed a poison pill aimed at preventing Liberty from increasing its stake in News Corp. When he extended the plan last year, investors led by Australian pension fund UniSuper Ltd. sued, accusing Murdoch and other directors of breaking a promise to let shareholders vote on whether to extend the company's takeover defense.

In June, a Delaware Chancery Court judge approved a settlement that allows News Corp. shareholders to vote on such plans for the next 20 years if they approve a two-year extension of the current one in October. A swap of assets would eliminate the need for the poison pill.

Liberty Media in May separated its stock into Liberty Interactive, for the QVC channel and its Web shopping business, and Liberty Capital, for investments including the Starz Entertainment channels.

To contact the reporter on this story: Cecile Daurat in New York at cdaurat@bloomberg.net

Last Updated: September 15, 2006 00:08 EDT