U.S. cable TV mogul John Malone’s Liberty Interactive announced a complex deal that would help eliminate its “tracking stock” structure, giving the company greater access to the equity market and flexibility to make acquisitions.
The deal includes the purchase of Alaska-based telecom company General Communication Inc for $1.12 billion, which will then be combined with Liberty Ventures, the holding entity for Liberty Interactive’s cable TV and other assets.
Liberty Ventures (LVNTA) is one of Liberty Interactive’s two tracking stocks – a type of common stock that “tracks” or depends on the financial performance of a specific business unit of a company rather than the operations of a company as a whole.
The other tracking stock – QVC Group (QVCA) – reflects the value of Liberty Interactive’s home-shopping businesses including HSN and QVC.
The company said eliminating the tracking stock structure would make the stocks eligible for inclusion in stock indexes, allowing them easier access to the equity market.
FBN Securities analyst Robert Routh said dropping the tracking stock structure would highlight the asset value for both QVC and Liberty Ventures.
“A lot of investors can’t own tracking stocks, so by creating asset-backed securities it makes them interested … You can buy one without being tethered to the other,” Routh said.
General Communication (GCI) shareholders will receive $32.50 for each share, representing a premium of 58.1 percent to the stock’s close on Monday.
QVC Group shares gained about 4 percent and Liberty Ventures shares jumped nearly 10 percent in morning trading.
Liberty Interactive will combine GCI with Liberty Ventures and then split off the combined company to Liberty Ventures shareholders in a tax-free transaction.
Liberty Interactive will be renamed QVC Group Inc after the deal, housing the home-shopping businesses of QVC Group as well as some assets and liabilities to be transferred from the newly-minted GCI Liberty, which will be remain a listed company.
“This transaction will ultimately create a standalone Liberty Ventures, reducing the tracking stock discount and enabling an asset-backed QVC Group,” said Liberty Interactive Chief Executive Greg Maffei.
Liberty Interactive will hold a 77 percent equity interest and an 84 percent voting interest in GCI Liberty, which is expected to trade on the Nasdaq.
Malone is known for striking complex deals and running companies with intricate structures.
Liberty Interactive was itself split-off from Liberty Media in 2013.
Maffei will become CEO of GCI Liberty, while GCI CEO Ron Duncan will join the board.
After the transaction, total pro-forma net asset value of GCI Liberty would be $6.46 billion.
GCI Liberty will be an Alaska corporation at the time of the closing of the deal, but will seek to reincorporate itself in Delaware.