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May 5, 2009 6:26 PM

Four Firms Headline Liberty Media Spinoff, DirecTV Merger

Posted by Brian Baxter

Billionaire John Malone is making a few adjustments to the ongoing makeover of his media empire by reshuffling the assets of his Englewood, Colo.-based holding company Liberty Media.

On Monday, Liberty Media announced that it would complete its planned spinoff of its Liberty Entertainment unit and merge it with DirecTV, the largest U.S. satellite broadcast provider.

Liberty Entertainment is one of three tracking stocks of Liberty Media, along with Liberty Capital (owner of the Atlanta Braves) and Liberty Interactive (owner of QVC and Barry Diller's IAC/InterActiveCorp). The company also owned a 48 percent stake in El Segundo, Calif.-based DirecTV.

The new company will assume the DirecTV name and own stakes in Liberty Media holdings like the Game Show Network and Starz Entertainment. Malone will control 24 percent of the DirecTV's new voting shares. The deal is designed to give him more direct control over both operations as chairman of DirectTV's board following the merger.

"It's what the tax guys call a double dummy [acquisition structure]," says Baker Botts M&A partner Frederick "Buzz" McGrath, lead counsel to Liberty Media on the deal.

McGrath has served as outside counsel to Liberty Media for over two decades--back when Malone's company was still called Tele-Communications (TCI) Inc. He tries to explain the deal's machinations to us:

"DirecTV will form a holding company. It drops two [subsidiaries]. DirecTV merges into one [subsidiary]. Liberty Entertainment gets spun off from Liberty Media and that company merges into the other [subsidiary] and they both get the stock of this holding company that will eventually be called DirecTV."

Got all that? If not, well, just know it involved a lot of Am Law 100 lawyers.

McGrath was assisted by Baker Botts M&A partners Jonathan Gordon and Renee Wilm, corporate partner Robert Murray, tax partners Tamar Stanley and Ben Wells, finance partner Martin Toulouse, employee benefits partner Rob Fowler, IP partner Jeffrey Sullivan, and special tax counsel Scott Langley.

Skadden, Arps, Slate, Meagher & Flom tax cohead Matthew Rosen also advised Liberty Media. Goldman Sachs, which served as financial adviser, was advised by Cleary Gottlieb Steen & Hamilton capital markets partner Ethan Klingsberg and associate Adrian Leipsic.

Weil, Gotshal & Manges M&A cochair Frederick Green, M&A partner Michael Lubowitz, and tax partner Marc Silberberg advised DirecTV on the transaction.

Delaware counsel was provided by corporate partners Donald Bussard and Mark Gentile from Richards, Layton & Finger. William Wiltshire, a founding partner of Washington, D.C.'s Harris, Wiltshire & Grannis, is serving as FCC counsel.

A special standing committee of DirecTV's board of directors was represented by Simpson Thacher & Bartlett chairman Richard "Dick" Beattie and corporate M&A partners Marni Lerner and Kathryn King Sudol.

Morgan Stanley, which served as financial adviser to the special committee, was advised by Cravath, Swaine & Moore corporate M&A partner Faiza Saeed and associate Sarah Jones.

The new company will have about $30 million in cash and $2 billion in debt. Pending FCC and antitrust approvals and stockholder votes on both sides, McGrath says the deal is expected to be completed by the end of the year.

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