A Malone and Murdoch Pas de Deux

At the UBS media conference in New York, News Corp. and Liberty Media may have danced around the merger issue, but plenty was said

By Ronald Grover

Media conferences are great places for CEOs to strut their stuff and promote their companies. But it's the body language that tells what many of them are really thinking. And in the case of this week's UBS media conference in New York, the body language said that Rupert Murdoch's News Corp. (NWS) and John Malone's Liberty Media (LINTA) are on the verge of striking a deal that would have News Corp.'s 39%-owned DirectTV Group (DTV) satellite operation being shipped to Liberty Media. When this would happen is another question. But from the cheap seats at the Grand Hyatt Hotel, the fix looked definitely in.

First it was News Corp. President Peter Chernin taking the stage. Under questioning, he grimaced a bit, said he would have no comment, and then rattled off the fact that there are, indeed, some assets the company wouldn't mind selling off. And he acknowledged that the company has been talking to Malone's folks.

"Have there been conversations between ourselves and Liberty? Sure," he says. "And we're pretty confident we could get something done. Does that rationalize the price we could get? That's another story." (See BusinessWeek.com, 9/18/06, "Murdoch to Bid Satellite Goodbye.")

Taxing Considerations

John Malone's CEO, Liberty Media President Greg Maffei, was a little more circumspect. "We'll let Rupert do the talking," he says. "That seems to be News Corp.'s specialty." But then, Maffei launched in, spinning off regulations in the tax code that would allow for Liberty—which he says values its 19% stake in News Corp. at about $1.7 billion—to pay virtually no taxes for swapping that stake for News Corp.'s share in DirecTV that some have valued at around $11 billion.

"When you're with Liberty, you think about the tax consequences," he says, a none-too-subtle reminder that the billionaire Malone is famously eager to use any tax loophole he can find.

So what would Liberty do with DirectTV, which has north of 15 million subscribers but has been hobbled in getting new subscribers because it doesn't yet offer data or phone service as its cable competitors do (see BusinessWeek.com, 9/22/06, "Why Malone Desires DirecTV")?

"Other Opportunities"

Well, Maffei allows, that's all hypothetical, since no one has struck a deal as yet to swap DirecTV. Still, he's ready for the asking. The company, he says, has plenty of financial flexibility to buy back shares or buy assets, having only around $1 billion in cash on its balance sheet, he says. Then there are "strategic opportunities in terms of joint ventures and the like to get broadband."

Hint: Word on the street has AT&T (T) and Liberty already having just such talks, with AT&T coming in as a partner. And how about a potential merger with satellite competitor Echostar Communications (DISH)? Maffei won't go there either, but allows "there are other opportunities such as a better alignment with Echostar."

What's even clearer is that Maffei and Malone desperately want DirectTV. Since Malone, the former CEO of cable giant TeleCommunications, sold off TCI in the late '90s, he, "hasn't had the distribution muscle to protect Liberty's programming assets," Maffei allows.

A Little Help?

Those assets, which include the Starz pay TV service (LCAPA), the QVC shopping channel, and a company that controls a 50% stake in the Discovery Channel, would grow faster if they had the satellite operation in the family to help them launch new channels, he hints.

Just to punctuate Liberty's desire to wrestle DirecTV away from News Corp., Maffei does some quick math on what having the satellite operation might mean to Liberty Capital, the Liberty Media tracking stock that holds the shares. Oh, about $20 a share alone in the tax avoidance, even before the dealmaking that's dancing in his (and John Malone's) fertile imaginations.

Okay, so maybe Peter Chernin opened the door. But pardon us if we disagree with Greg Maffei on one point: He did his share of talking as well.