AT&T Seeks to Allay Regulatory Concerns With Planned Spinoff of Liberty Media

Seeking to allay regulatory concerns created by its cable television acquisitions, AT&T (T Quote) said Wednesday that it would place Liberty Media Group(LMG Quote), its television programming unit, under a separate corporate roof.

Liberty, acquired in AT&T's purchase of Tele-Communications Inc. in 1998, would be spun off as an independent, publicly traded company to the holders of Liberty's tracking stock. The move is intended to help AT&T comply with conditions placed by the Federal Communications Commission on AT&T's recent $50 billion acquisition of MediaOne Group.

Wall Street welcomed the news, which was announced after the stock market closed. In after-hours trading, Liberty's tracking stock climbed $1.12 from its closing price, to $16.75, according to Instinet. AT&T's shares edged up 12 cents, to $20.63. Both stocks were little changed in regular trading.

For AT&T, which recently announced that it would split into four parts, the announcement could also be intended to signal an attempt to resolve some complex tax concerns. The company noted in a statement that the spinoff is subject to a favorable tax ruling.

For John Malone, the chairman of Liberty Media, such a deal could grant the corporate freedom from AT&T those same tax issues have prevented a quick break.

Because the acquisition of Tele-Communications was tax-free, AT&T would have to pay some taxes if it sold Liberty Media outright before the spring of 2001. But the tax penalty would not take effect if AT&T demonstrated to the Internal Revenue Service that such a sale was based on material business reasons, such as the four-way breakup.

The proposal may create as many tax concerns as it may solve. In the Tele-Communications deal, Malone secured an agreement that Liberty would retain the tax benefits of $2 billion in net operating losses that were carried on the books of Tele-Communications when he sold it to AT&T.

If Liberty is indeed spun off, AT&T could have to pay Liberty the cash value of those losses, potentially hundreds of millions of dollars.

Aside from the tax issues, AT&T intends to resolve this dilemma: The FCC required the company to shed some of its cable subscribers or investments, leaving three options: The company would have to give up either its 25.5% interest in the Time Warner Entertainment partnership with Time Warner(TWX Quote), or its programming interests including Liberty Media, or its interests in other cable systems.

AT&T also said the spinoff would allow Liberty Media to raise capital on its own and use its stock as currency for acquisitions.

Under the corporate restructuring, which AT&T hopes to complete in 2002, AT&T Wireless and AT&T Broadband would be represented by independent, asset-based common stocks. AT&T Consumer would be represented by a tracking stock of AT&T. AT&T's principal unit would be AT&T Business. AT&T shareholders would ultimately own all four.