Liberty Media said it is spinning off its cable and broadband properties into a new publicly traded company that will be called Liberty Broadband. At the same time, the company also said it bought 897,000 shares of Charter for $124.5 million, giving it a 26.4 percent beneficial ownership of Charter’s equity.
Liberty Media made the announcements with the release of its first quarter financials. Among its other properties, Liberty Media reported that SiriusXM and LiveNation both had solid quarters, and that it had sold off 90 percent of its stake in Barnes & Noble.
The spinoff is scheduled to be complete by the end of the year.
Liberty Broadband will end up with Liberty Media's interest in Charter Communications; its minority interest in Time Warner Cable; TruePosition, a subsidiary that provides geolocation services largely to public safety and law enforcement agencies; and other properties.
The company will also offer subscription rights to shares in the new company. The subscription rights are being issued to raise capital for general corporate purposes of Liberty Broadband, Liberty Media said.
No deal pulled off by John Malone in recent years has lacked some tax advantage, and this maneuver will be no different. The spinoff and an associated rights offering are intended to be tax-free to stockholders of Liberty Media. The spun off company will end up with certain deferred tax and deferred revenue liabilities, as well as liabilities related to the Time Warner call option, according to Liberty Media.
Greg Maffei, Liberty Media president and CEO, said, "We believe a separate Liberty Broadband will offer investors greater choice and transparency, and is well timed with Charter's agreements with Comcast which will result in Charter owning or serving over eight million video customers."
Maffei told the Denver Business Journal that some shareholders place lesser value on tracking stocks, and thus the spinoff. That Liberty Broadband would be an independent entity should also make fundraising simpler if Liberty wants to help Charter in future acquisitions. “Charter will likely be the most active and first stop in cable deals,” he said. “Inside the U.S., they seem to be the best game in town in my mind,”Maffei said.
In the spin-off, record holders of Series A, Series B and Series C common stock would receive one-fourth of a share of the corresponding series of Liberty Broadband common stock for each share of common stock held by them as of the record date for the spin-off, with cash in lieu of fractional shares. In addition, stockholders will also receive a subscription right to acquire one share of Series C Liberty Broadband common stock for every five shares of Liberty Broadband common stock they receive in the spin-off.
The subscription rights are being issued to raise capital for general corporate purposes of Liberty Broadband and will enable the holders to acquire shares of Series C Liberty Broadband common stock at a 20% discount to the 20-trading day volume weighted average trading price of the Series C Liberty Broadband common stock following the completion of the spin-off.
The company said it expects the subscription rights to become publicly traded once the exercise price has been established and the rights offering to expire forty trading days following the completion of the spin-off.
The spin-off and rights offering are intended to be tax-free to stockholders of Liberty Media and the completion of the spin-off and commencement of the rights offering will be subject to various conditions, including the receipt of an opinion of tax counsel. Subject to the satisfaction of these conditions, the completion of the spin-off and the commencement of the rights offering is expected to occur in the second half of 2014.
As for its first quarter performance, Liberty Media's revenue increased $222 million to $1 billion, compared to its first quarter a year ago. Net income was $155 million, a little more than a year ago. The company’s revenue and income bowed up and back down during the course of the year; Liberty Media’s 2014 first quarter was a return to year-ago levels.