Liberty Media to split off Liberty Entertainment

NEW YORK (Reuters) - Liberty Media Corp will spin off its stake in DirecTV Group and other assets into a publicly traded company called Liberty Entertainment Group SA, taking the first step to simplify ownership of the satellite TV provider.

Liberty's 50 percent stake in DirecTV will be the dominant asset in Liberty Entertainment, accounting for more than 80 percent of its value.

Wall Street analysts said the long-anticipated move could eventually lead to Liberty Entertainment and DirecTV being merged into one trading entity, which would make it easier for Malone to trade the stock for acquisitions in the future.

"We believe that the company would not have announced these spin plans without at least a substantial road-map toward combining DirecTV and Liberty Entertainment into a single entity that would be acceptable to DirecTV's independent directors," said Vijay Jayant, an analyst at Lehman Brothers.

Englewood, Colorado-based Liberty Media, controlled by cable pioneer John Malone, said on Wednesday it planned to distribute shares of the new stand-alone unit to current holders of Liberty Entertainment tracking stock.

It said it would redeem all outstanding shares of Liberty Entertainment tracking stock for shares of the unit and it intended the transaction to be tax-free to stockholders.

"We believe converting the Liberty Entertainment tracking stock to an asset-backed security will create a stronger currency and allow greater flexibility to pursue our strategic objectives," said Liberty Media Chief Executive Greg Maffei in a statement.

Liberty Media has operated under three tracking stocks to allow investors to more closely follow its businesses. The other two tracking stocks are Liberty Interactive, home to QVC shopping channel and Liberty Capital, which holds passive stakes in companies including Time Warner Inc and Sprint Nextel Corp.

Liberty Media said last month it was exploring options to close the gap between what it saw as the intrinsic value of the Liberty Entertainment assets and the price at which its tracking stock valued it. The trading stock has risen around 8 percent since it was created in March.

Liberty Entertainment will consist of about 50 percent of DIRECTV Group Inc, the U.S. largest satellite TV operator; Starz Entertainment, the pay-TV network; Liberty Sports Holdings; FUN Technologies; and stakes in GSN and WildBlue Communications.

Gross debt at Liberty Entertainment will be $2 billion used to buy 78.3 million DirecTV shares in April.

Analysts said that by splitting off Liberty Entertainment, it creates currency that could help close that gap.

"With Liberty Entertainment trading as an independent entity, we believe the current discount to net asset value could be reduced, making the stock a more efficient transaction currency," said Bryan Goldberg, an analyst at JP Morgan, in a note to clients.

Liberty expected the executive officers of Liberty Media to also hold those positions at Liberty Entertainment.

(Reporting by Yinka Adegoke; Editing by Lisa Von Ahn and Andre Grenon)