Liberty to Spin Off Discovery

One of the world’s most valuable names on cable TV may soon be up for grabs as a result of a financial maneuver Tuesday by cable mogul John Malone.

Liberty Media Corp., Malone’s cable programming company, said Tuesday that it would spin off its 50% stake in Discovery Communications Inc., which owns cable networks such as the Discovery Channel, TLC, Animal Planet and the Travel Channel.

Discovery, based in Silver Spring, Md., is the only major group of cable channels left that is not in the hands of a big media conglomerate such as Time Warner Inc., Viacom Inc. or Walt Disney Co.

The transaction, which Liberty said would be completed by June, also would include Los Angeles-based Ascent Media Group, which provides postproduction services to the entertainment industry.

Analysts said the move figured into Malone’s plans to gradually liquidate his holdings, which also include the QVC shopping channel, Starz Entertainment Group and stakes in Barry Diller’s IAC/InterActiveCorp, News Corp. and CourtTV.

The proposed spinoff is “further indication that Liberty could eventually be dissolved,” said Jessica Reif Cohen, an analyst at Merrill Lynch & Co.

Last year, Malone spun off Liberty’s international operations. The 64-year-old Denver cable maverick is expected by summer to trade Liberty’s 18% stake in News Corp. back to the company, mostly in exchange for cash.

In addition, sources say, Malone is negotiating to sell his stake in CourtTV to Time Warner, which owns the other half. They say he is likely to combine QVC with Diller’s Home Shopping Network.

Analysts said the proposed spinoff was Malone’s latest attempt to get his partners on board with a sale of Discovery. Malone has been eager for several years to cash in on sky-high cable values through a sale but has been hampered by his lack of control over the company and the veto rights enjoyed by his partners.

In addition to Liberty, Discovery is owned by Cox Communications Inc., Advance/Newhouse Communications and founder and Chairman John S. Hendricks.

“Malone is betting they will play ball this time even though he hasn’t historically been able to get them to do a deal,” said Richard Greenfield, an analyst at Fulcrum Global Partners. “This will be very exciting if they participate.”

It is unclear whether Malone’s partners will come on board. In a statement, Cox said that “discussions are at a preliminary stage and it’s far too early to predict the outcome.”

In a conference call Tuesday with analysts, Malone and Liberty Media President Robert Bennett said the company was in talks with Cox and Advance/Newhouse to contribute their stakes in Discovery to the newly created company, Discovery Holdings Co. They said other Liberty assets were not added into the proposed new entity, in part to make it easier to negotiate with their partners.

Analysts said that the spinoff would be far less attractive if it owned Ascent and only Liberty’s noncontrolling stake in Discovery but that it could be a hot stock if Cox and Advance/Newhouse contributed their shares.

Several years ago, General Electric Co.’s NBC Inc. came very close to a merger with Discovery, but negotiations fell apart when Malone put a price tag on Discovery of about $30 billion.

Viacom Chairman Sumner Redstone has repeatedly expressed interest in Discovery, which analysts estimate could sell for $15 billion or more in a bidding war. Comcast Corp., which is trying to build its programming lineup, also would be interested in owning Discovery, sources said.

Liberty shares rose 27 cents to $10.50 on the New York Stock Exchange.