AT&T GAINS FAVORABLE TAX RULING FOR LIBERTY MEDIA SPINOFF
In another major victory on regulatory front, AT&T announced Wed. that IRS had blessed company’s bid to spin off its Liberty Media subsidiary as completely independent company. IRS ruled that proposed split-off would qualify as tax-free transaction for AT&T, Liberty Media and their shareholders, potentially saving them estimated minimum $2 billion in tax bills. As result, AT&T said it planned to convert its current Liberty Media tracking stock into separate asset-based security and start unit as new company by midsummer. AT&T also said Liberty Media Chmn. John Malone, as expected, would “retire” from parent company’s board following spinoff.
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With move, AT&T will execute one of 3 cable divestiture options spelled out by FCC in its order approving company’s $44 billion purchase of MediaOne Group last June. In that order, Commission gave AT&T choice of spinning off Liberty Media, selling its 25.5% stake in Time Warner Entertainment (TWE) or shedding cable systems with 9.7 million subscribers to comply with agency’s 30% cable ownership cap. While AT&T eventually said it wanted to both spin off Liberty Media and sell TWE stake, FCC ruled that AT&T needed to shed TWE to comply. But Commission then suspended its MediaOne compliance conditions last month, following U.S. Appeals Court, D.C., ruling that struck down cable ownership limits as unconstitutional (CD March 20 p2).
Industry sources said AT&T, thanks to suspension of MediaOne conditions, now could proceed with Liberty Media spinoff, shedding TWE interest and other cable asset sales on its own timetable. AT&T spokeswomen indicated Wed. that company planned to do exactly that and continue to discuss sale of TWE stake back to AOL Time Warner. “We're still in the process of negotiating,” said one AT&T spokeswoman. “Our goal is certainly to do it in the most expedient way possible.”
Spokesman for AOL Time Warner confirmed merely that “discussions are ongoing” with AT&T over TWE. AT&T spokeswomen said their company hadn’t set deadline or target date for completing negotiations, still believed to be deadlocked over sales price. Earlier AT&T deadline of March 15 quietly passed without agreement but both companies extended negotiations.
AT&T said it also would continue to pursue sale of most or all of its 30% stake in Cablevision Systems as part of its effort to raise cash and pare its debt (CD April 11 p7). AT&T also is trying to sell its stakes in various programming networks that it inherited from MediaOne. Finally, company recently sold cable systems with total of more than 1.3 million subscribers to Charter Communications and Mediacom Communications and is rumored to be looking to dump more.
In meantime, industry sources expect FCC to proceed slowly and carefully with examination of whether its MediaOne conditions should still apply to AT&T in light of appellate court’s cable cap ruling. They predicted that Commission would issue low-key public notice to seek comment on matter and review comments before making ruling. If agency goes that route, notice could come out of either Cable Bureau or Office of Gen. Counsel as soon as this week or next week.