Liberty Media to Consider Bid for DirecTV

[Gregg Lengling]

Liberty Media Corp. Chief Executive Robert Bennett said Thursday that the company would be interested in looking at an acquisition of Hughes Electronics Corp.'s DirecTV.

During a conference call, Bennett said Liberty, the investment company run by cable magnate John Malone, would have an interest in making the acquisition of the satellite-TV provider on a standalone basis or in partnership with Rupert Murdoch's News Corp.

News Corp. recently raised $1.3 billion through a secondary stock offering in its Fox Entertainment Group Inc. unit, fueling speculation that it may be preparing a move to acquire DirecTV.

The speculation comes in the wake of regulatory opposition from the Federal Communications Commission and the U.S. Department of Justice to the proposed merger of EchoStar Communications Corp. and Hughes.

Bennett also said Liberty -- an Englewood, Colo.-based owner of programming and other communications assets -- has been working with Dutch regulators to gain approval of Liberty's proposed acquisition of Dutch cable operator Casema BV from France Telecom
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Regulators are concerned about the deal, which was announced Aug. 1, because of Liberty's ownership interest in United Pan-Europe Communications, which has 40 percent of the cable-TV connections in the Netherlands, while Casema has 20 percent.

"Given our ownership in UPC, it came as no surprise that the antitrust regulators elected to go into a second phase. That phase should take three to four months," said Bennett.

Under the terms of the contract with France Telecom, either company has the ability to terminate it, and Liberty continues to talk to France Telecom about how to go forward, he said.

"We continue to work on the transaction. I think it's one that ultimately we will be successful with from an antitrust point of view," Bennett said.

Bennett also noted that Liberty has been seeing signs of an improving advertising market, particularly evidenced by double-digit advertising sales gains in all the networks within its 50 percent-owned Discovery Communications Inc. unit.

The year-over-year advertising sales rises included an 11 percent increase for the Discovery Channel, a 28 percent increase for The Learning Channel, a 44 percent increase for Animal Planet, a 37 percent increase for the Travel Channel and a 77 percent increase for Discovery Healthy Channel, Bennett said.

Discovery Communications saw third-quarter total revenue rise 13 percent versus a year ago, to $408 million, and total third-quarter operating cash flow rise 100 percent to $78 million.

The company revised 2002 guidance for Discovery Networks U.S. upward because of the strong gains in advertising, said Liberty in a press release. The new guidance calls for a 10 percent rise in 2002 revenue versus 2001, and a 15 percent rise in operating cash flow.

But guidance for Discovery Networks International was directed downward because of continued weakness in Latin America. The new guidance is for a year- over-year revenue rise of 10 percent and an operating cash flow rise of 125 percent to 135 percent.

For Discovery Communications as a whole, the guidance remains unchanged, with year-over-year revenue expected to rise by 10 percent and operating cash flow by 40 percent.

Liberty Media's nonpublic businesses had "another very strong quarter," said Bennett.

Besides 50 percent owned Discovery Communications, they include 100 percent-owned Starz Encore Group LLP; 42 percent-owned QVC Inc.; 36 percent-owned Jupiter Telecommunications Co. Ltd.; and 50 percent-owned Jupiter Programming Co. Ltd.

Movie provider Starz Encore's third-quarter revenue rose by 12 percent to $243 million, and its operating cash flow rose 9 percent, to $91 million. Its 2002 guidance was revised upward so that revenue is now expected to rise 10 percent to 11 percent versus 2001 and operating cash flow is expected to rise 17 percent versus 2001. Prior guidance was for 2002 revenue to rise 10 percent and operating cash flow to have a percentage rise in the mid teens.

Home shopping company QVC saw third-quarter revenue rise 13 percent year-over-year to $1.01 billion and operating cash flow rise 20 percent to $185 million.

Japanese cable-TV operator Jupiter Telecommunications saw third-quarter revenue rise 48 percent to $245 million and operating cash flow rise 265 percent to $62 million.

Japanese programming company Jupiter Programming saw third-quarter revenue rise 41 percent to $72 million and its operating cash flow increase 125 percent to $9 million.

In its consolidated statement of operations, Liberty posted a net loss in the third quarter of $74 million, or three cents a share, versus a net loss of $215 million, or eight cents a share, a year ago, according to its 10-Q filing Thursday with the Securities and Exchange Commission.

Liberty posted a third-quarter operating loss of $39 million, said the filing. After accounting for a number of other items, including interest expense of $106 million, share of losses of affiliates of $406 million, gains on financial instruments of $699 million, and nontemporary declines in the fair value of investments of $268 million, the net loss was $74 million.

The company's shares in publicly traded companies, such as News Corp.and AOL Time Warner, was $14.04 billion as of Nov. 13, plus a $5.01 billion value for collar hedges on the underlying securities, for a total value of $19.05 billion.

That compared favorably with a value of $12.44 billion, plus $4.77 billion of collar hedges, for a total value of $17.21 billion as of Aug. 14.

Bennett also said on the call that, barring clarity from the Internal Revenue Service on how to treat share buybacks, he doesn't anticipate being active in buying back shares for six months or so.

As part of Liberty's agreement with the IRS when it was spun off from AT&T Corp. in August of 2001, Liberty said it would issue $500 million in equity. But it's unclear to Liberty whether the IRS would require it to issue not only the $500 million in equity but also an added amount of stock compensating for the shares it had repurchased.

On Nov. 1 Liberty announced it had finalized terms for an offering to holders of Liberty A and B shares of a .04 subscription right for each share owned. Each right entitles the holder to buy one A share for $6.

"Assuming full subscription of the offering, we'll raise over $600 million in cash," Mr. Bennett said.

The rights offering satisfies the obligation to the IRS to issue $500 million in equity, said Mr. Bennett.