George Mannes

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Liberty Media Boosts Stake in News Corp.

George Mannes

The Malone-controlled Liberty Media (L Quote - Cramer on L - Stock Picks) said Wednesday it had acquired a 9.15% voting interest in the Murdoch-controlled News Corporation (NWS Quote - Cramer on NWS - Stock Picks).

Liberty didn't immediately explain why the company chose to convert some of its nonvoting shares into voting stock. Perhaps Liberty, which has long been an investor in News Corp. and other media companies, has a sudden desire to throw its weight around.

Yet it's also possible, judging from a quick, back-of-the-envelope analysis of the transaction, that Liberty is buying the voting stock simply because it can get a good deal in the shares.

News Corp.'s voting American depositary shares, which trade under the ticker symbol NWS, rose 41 cents Wednesday to close at $38, while the nonvoting ADSs, which trade as NWSA, rose 60 cents to $32.95.

If, in fact, Liberty assembled its voting shares to make an explicit or implied threat to Murdoch's management, it would make an already interesting media sector even more interesting in the coming months and years. With News Corp.'s recent deal to gain control of DirecTV operator Hughes Electronics (HS Quote - Cramer on HS - Stock Picks), Murdoch has achieved his long-sought foothold in the U.S. satellite business. By gaining a larger voting stake in News Corp., it's possible that Malone -- whose status as a legendary dealmaker is almost a cliche -- has gained a negotiating tool with Murdoch, one which might be used in any negotiations for carriage of Liberty programming, such as the QVC shopping channel or the Starz Encore premium channels.

Liberty says it's now the largest shareholder in News Corp. and has the second-largest voting stake. Liberty also owns a major stake in the Barry Diller-led InterActiveCorp (IACI Quote - Cramer on IACI - Stock Picks).

Or the deal may be just another example of Malone's financial legerdemain. Although the announcement of the News Corp. stake isn't exhaustively detailed, Liberty says it "effectively exchanged" 21.2 million nonvoting ADSs plus $693 million in cash for 48 million voting ADSs, "taking into account proceeds from sales and unwinding of collars on nonvoting ADSs."

Based on Wednesday's closing prices (Liberty says the transaction was executed Tuesday), Liberty forked over $699 million in nonvoting shares -- that is, 21.2 million nonvoting shares priced at $32.95 apiece -- plus the $693 million in cash, or a total of $1.39 billion. Divide that payment by the 48 million voting shares Liberty received in return, and it appears that Liberty bought them for $29 apiece -- a 24% discount to their Wednesday closing price of $38.

That's a good deal -- so good a deal that a media investor who ran through those numbers Wednesday night wondered whether the calculations overlooked some crucial relevant detail.

Indeed they might. As another sign of the deal's complexity, Liberty said it entered into a hedge on 38 million voting ADSs.

Liberty didn't respond to a call for comment Wednesday.