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Game over? After two years of shadow-wrestling Rupert Murdoch finally looks poised to get John Malone off his back – thanks in large part to the tax man.
Since Mr Malone’s Liberty Media snatched a 19 per cent voting stake in News Corporation, Mr Murdoch has sought a way to neutralise that threat to his family’s control. If the mooted deal happens, Mr Malone would swap his News Corp holding for that company’s 39 per cent stake in satellite operator DirecTV. While the two stakes are of broadly equal value, News Corp might throw some cash and sports networks into the tax-free deal, partly to reflect the rise in DirecTV’s shares on deal speculation and Mr Malone’s strong negotiating position.
For Mr Murdoch, it is about family control. A deal, which would not have happened otherwise, should make the Murdoch voting stake in News Corp pretty invincible. There is, however, a fig leaf for minority shareholders. News Corp earnings will rise significantly after what is effectively a huge buy-back, the capital gain on selling out of DirecTV is tax free and uncertainty is removed overall. Mr Malone, meanwhile, also avoids serious tax on his News Corp stake. In all, the two sides could save billions in tax on the roughly $11bn swap, while each getting something they want: control.
Mr Murdoch secures News Corp for future generations. Mr Malone gets a serious media asset that he can try to run better, gear up or sell on in another tax-free deal. It won’t happen immediately. But it feels like only a matter of time before he tests regulators by attempting a merger with Echostar, or a sale to AT&T. Only then would News Corp shareholders get an inkling of what their DirecTV stake might have been worth in a competitive auction.
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