TCI Will Be Reunited With Liberty Media : Television: Merger would join two of the most powerful cable companies in the nation. They were split two years ago.

Tele-Communications Inc. and Liberty Media Corp. today are expected to formally announce that they have agreed to merge in a deal that would reunite two of the nation’s most powerful cable TV companies, knowledgeable sources said Thursday.

The stage was set for the announcement after Liberty Media’s board Thursday approved a merger accord with Denver-based TCI, the sources said.

TCI, one of the largest operators of cable TV systems, and Liberty Media, a major supplier of cable programming, were split up more than two years ago over regulatory concerns about concentration of ownership in the cable TV industry.

TCI is headed by John C. Malone, who is also chairman and the controlling shareholder of Liberty Media. TCI, which now owns less than 5% of Liberty Media common stock, serves more than 10.5 million cable subscribers and owns 22% of Turner Broadcasting System Inc. and 49% of The Discovery Channel. Liberty Media serves about 3 million cable subscribers and has stakes in two dozen cable networks.

Liberty stockholders would receive 0.975 shares of stock in the new company for every share of Liberty, one source said. Shares of TCI stockholders would be swapped at a one-for-one rate. That valuation would appear to be based on the respective prices of TCI and Liberty stock before they shot up Thursday on reports of a merger between the two companies.

The TCI-Liberty merger, which requires the approval of TCI’s board, is being planned against the backdrop of a bidding war for Paramount Communications Inc., which is weighing rival bids from Viacom Inc. and QVC Network Inc.

Liberty is QVC’s largest shareholder and has agreed, along with Philadelphia-based cable operator Comcast Corp., to contribute $500 million in cash toward the Paramount acquisition.

But sources said the proposed TCI-Liberty merger was under consideration before QVC entered the bidding for Paramount last month.

Sources said the deal is being driven by recent decisions by the Federal Communications Commission and the U.S. Supreme Court concerning the size and scope of cable TV companies. Those decisions allow the web of interlocking ownership interests between operators and suppliers that many observers feared might be regulated.

“A year ago, (Malone) was targeting the fall after the new rules were issued” to re-merge the two companies, one source said. “It has nothing to do with Paramount.”

Still, a TCI-Liberty merger could help QVC raise the cash portion of its bid for Paramount by tapping TCI’s huge cash flow.

Analysts expect the rival QVC and Viacom bids to eventually be determined on the amount of cash the winning party will contribute to the cash-and-stock offers. The Paramount board is expected to consider QVC’s financing when it meets Monday.

Another reason for the TCI-Liberty merger is to help Malone “realize” the value of his substantial interest in Liberty, where he transferred his TCI stock in 1991 when Liberty was spun off from TCI. Malone’s stake in TCI is worth about $700 million. In addition to Malone, TCI founder and Chairman Robert Magness holds Liberty stock worth about $250 million.

Liberty stock jumped $1.50 to an all-time high of $28.50 on Nasdaq on Thursday after reports surfaced about the proposed merger. TCI, meanwhile, fell 75 cents to $25.875, and QVC slid $1.50 to $54.50, both on Nasdaq. Paramount slipped 37.5 cents to $77.25 on the New York Stock Exchange and Viacom Class B shares were off 25 cents to $51.875 on the American Stock Exchange.

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