Taxes Drive Malone's Fox Stations Talks


Liberty Media’s discussions to take control of some of Fox’s TV stations have nothing to do with Chairman John Malone’s new love for broadcasting. It’s all about his long-held loathing of taxes.

Malone—the onetime "godfather" of cable—is moving closer to a deal to unwind Liberty’s $10 billion stake in News Corp. in a deal that may give it Fox’s TV stations in small markets.

As first disclosed by B&C last September, News Corp. is offering Malone stations generally outside the top 25 markets to dissipate the threat of having an outsider control so much stock.

Liberty has amassed 16% of News Corp. equity and 17% of its shareholder votes, making Chairman
Rupert Murdoch uncomfortable about Malone’s motives.

Malone’s primary goal is to have News Corp. buy him out. What catches his eye is the stations’ usefulness in limiting his tax bill. Federal tax codes ordinarily call for a seller to pay taxes on the profits of a stock sale. However, Malone wants News Corp. to structure a deal as a "cash-rich spinoff," which would require News Corp. to tuck some operating assets in with cash or News Corp. debt.

Liberty would have to hold the stations (which are worth around $800 million), along with any cash and securities, in a subsidiary for several years. But Malone could get immediate, tax-
deferred access to the cash by selling investors a derivative security created around the new subsidiary.

News Corp. and Liberty wouldn’t comment. But in a report to clients on June 20, UBS Securities’ Aryeh Bourkoff recounted a meeting with Roger Ailes, chairman of both Fox Stations and Fox News Channel. Ailes wouldn’t directly address the Liberty discussions but acknowledged that he considered only 25 of his 35 stations to be "core assets."

The stations under discussion include Kansas City, Mo. (the 31st-largest TV market), Milwaukee (No. 32) and Salt Lake City (36). One market is tiny: Gainesville, Fla., No. 162.

Selling these smaller stations would shrink the Fox stations group’s reach from 45 million homes to fewer than 40 million.