Liberty Media’s Starz Spinoff Can Proceed After BNY Mellon Loses Challenge

Liberty Media Corp. defeated Bank of New York Mellon Trust Co.’s legal challenge to its splitoffs of the Liberty Capital and Liberty Starz tracking stocks.

The Delaware Supreme Court yesterday upheld a ruling that clears the way for Liberty, controlled by billionaire John Malone, to transfer assets of the two tracking stocks to shareholders.

The splitoffs are part of Malone’s efforts to simplify Liberty’s financial structure and make it more attractive to investors, Barton Crockett, an analyst at Lazard Capital Markets Ltd. in New York, said last year.

Kevin Heine, a Bank of New York spokesman, declined to comment on the court ruling in an e-mailed statement. Liberty Media executives plan to complete the splitoff of the units on Sept. 23, Courtnee Ulrich, a company spokeswoman, said in an e- mailed statement.

As part of the deals, officials of Englewood, Colorado- based Liberty want to redeem outstanding shares of the units in exchange for shares in a newly formed company.

Liberty Starz holds Liberty Media’s interest in television company Starz Entertainment, according to the parent company’s website. Liberty Capital holds assets, including production and distribution company Starz Media LLC, and investments in Time Warner Inc. (TWX), Time Warner Cable Inc. and Sprint Nextel Corp. (S)

Bond Sales

Liberty got its start as the cable-TV programming arm of Tele-Communications Inc., the cable-service provider that Malone ran for more than 25 years. Malone kept control of Liberty after selling TCI to AT&T Corp. in 1999. AT&T spun Liberty off as a public company in 2001.

During a four-year-period starting in 1999, Liberty raised about $13.7 billion by selling bonds, according to court filings. The sales agreements contained provisions barring Liberty from transferring “substantially all” of its assets in a single or multiple transactions, Bank of New York said in the filings.

In 2004, Liberty began to spin off several units to shareholders, according to Bank of New York. The media company transferred more than $31 billion in assets during a five-year period in such deals, the lawyers said in filings.

Asset Transfers

Liberty’s move in 2010 to split off Liberty Capital and Liberty Starz meant the company would have transferred a total of 71 percent of its assets as a result of such transactions, violating the bond agreements, the bank said in court filings.

Liberty sued the New York-based bank, which holds the bonds as trustee, in August 2010 seeking to have a judge find the splitoffs were separate transactions that didn’t violate the bond agreements.

Delaware Chancery Court Judge Travis Laster ruled in April that the splitoffs couldn’t be “aggregated” because they weren’t part of an “overall scheme” to liquidate Liberty’s assets in a way that was detrimental to bondholders.

Bank of New York officials asked the state’s highest court to hear the case on an expedited basis given Liberty’s push to complete the deals by Sept. 23.

In its 43-page decision, the Delaware Supreme Court found no flaws in Laster’s analysis of the splitoffs as separate business transactions.

The lower-court judge “properly held that aggregation is not appropriate,” Justice Randy Holland said in the decision.

The Supreme Court case is Bank of New York Mellon Trust Company, N.A. v. Liberty Media Corp., 284, 2011, Delaware Supreme Court (Dover). The Chancery Court case is Liberty Media Corp. v. Bank of New York Mellon Trust Co., 5702, Delaware Chancery Court (Wilmington).

To contact the reporters on this story: Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net; Sophia Pearson in Wilmington at spearson3@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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