DirecTV to Merge With Liberty Entertainment

Updated from 9:36 a.m. EDT

DirecTV (DTV Quote) will join Liberty Entertainment(LMDIA Quote) in a spinoff from Liberty Media(LINTA Quote).

The move will combine the satellite TV service with Liberty's programming units, which include Liberty Sports, the Game Show Network and Fun Technologies. The new unit will take on $2 billion of Liberty's debt and $30 million in cash. DirecTV will also make $650 million in Liberty loan payments.

The plan calls for no changes to top management, and when the deal is complete Liberty Media Chairman John Malone will control 24% of DirecTV.

"This transaction clarifies DirecTV's capital structure, reduces its shares outstanding, eliminates stock overhang and arbitrage issues, and provides DirecTV with strategic content businesses," Liberty CEO Greg Maffei said in a press release.

DirecTV shares were down 4.9% to $23.36 in recent trading.

The consolidation of Liberty's TV broadcasting and programming units could help clear the way for Liberty Media's eventual control Sirius XM (SIRI Quote). In February, Liberty Media saved Sirius from bankruptcy with a $530 million loan, giving Malone a 40% stake in the satellite radio provider.

Last week, Sirius adopted a so-called poison pill to prevent unsolicited takeover bids. The plan would penalize hostile bidders with a significant dilution of voting power and stock value. The move exempts Liberty Media from the penalties.

The spinoff of DirecTV and the programming units help separate the satellite TV business from Liberty Media and creates a clearer acquisition target should AT&T (T Quote) revive its interest in a national TV asset.