Rupert’s Birds For Sale?

Here’s the source of the "turd birds" comment: CNBC’S Faber Report on Thursday, 14 September 2006. Here’s the transcript:

A controlling stake in satellite broadcast company DirecTV [Group Inc. (DTV)] is the subject of talks between News Corp. [NWS] and Liberty Media designed to allow News Corp. to buy back the $10 billion stake in the company Liberty currently controls.

The on-again, off-again talks have picked up significant momentum of late, according to people familiar with the situation. And the possibility of a tax-free exchange of News Corp.’s DirecTV stake for Liberty’s roughly $10 billion voting and non-voting stake in News Corp. is under consideration.

News Corp. is pushing the process along in hopes of resolving something prior to its Oct. 20 annual meeting at which it will hold a non-binding vote of its shareholders on whether it can extend its poison pill for two years.

News Corp. installed the pill in late 2004 after Liberty significantly increased its voting stake in the company to what is now roughly 19%. While the vote on the pill is non-binding, News Corp. would love to avoid the negative corporate governance implications if its shareholders advise against the pill, but it keeps it. Better to eliminate the threat from Liberty and its Chairman John Malone and therefore eliminate the pill.

The two sides have been talking for years, but the possibility of a deal has increased of late and both Peter Chernin, News Corp.’s president, and Greg Maffei, Liberty’s CEO, have sent positive signals about the talks to investors with whom they have been meeting at a Merrill Lynch media conference that is wrapping up today.

Liberty’s News Corp. stake, 188 million voting shares and 324 million non-voting, carries a taxable gain. Therefore, Liberty has been negotiating a swap with News Corp. Under current tax laws, a deal could be tax free if News Corp. sent Liberty an entity, 75% of which was made up of cash and 25% of an operating business. The tax-free treatment of the cash component begins declining next year to about 66% cash so Liberty may also have reason to move quickly.

Still, it is the possibility that the DirecTV stake could change hands which would have the most significance. Rupert Murdoch pursued DirecTV for years, but has lately soured somewhat on the asset, calling it a "turd bird."

He is distressed by the company’s lack of a robust broadband solution and building competition from Verizon [Communications Inc. (VZ)] and AT&T [Inc. (T)] on the video front. If he can get deals for Fox News and a potential business channel before jettisoning the stake, people familiar with his thinking tell me he would consider doing so.

An even swap of the News Corp. stake and the DirecTV stake would not be tax free and so News Corp. would need to include some sort of operating business known as an active trader that would allow it to be tax free. That is deemed as possible by people with knowledge of the talks.

Liberty officials declined comment and News Corp. officials have not returned calls.