Discovery Communications to Go Public

Finally acting on a move in the works for years, Discovery Communications is readying to go public. The decision comes out of a nonbinding agreement between the company's two shareholders, John Malone's Discovery Holding and Advance/Newhouse Communications.

It also comes almost exactly one year after David Zaslav joined the company as CEO. He has spent the past year overhauling its corporate structure, including most recently dismissing Jane Root as president of the company's flagship Discovery Channel. He has also made sweeping changes throughout the Maryland-based company in the United States and abroad, cutting some 26% of its work force (3,300 employees) closing its retail stores in malls, trimming corporate-operations teams and laying plans to rebrand its Discovery Home Channel as eco-themed network Planet Green.

Malone -- who, until 2005, had held 50% of the company while Advance/Newhouse and Cox Communications split the other the other 50% -- spun Liberty's interest into Discovery Holding in 2005. He became CEO of that new company, and Liberty shareholders got shares of the new company. Advance/Newhouse and Cox, however, couldn't help take the company public then by putting their shares into Malone's new company in part because of tax restrictions.

Zaslav will keep his job as the company goes public. Advance/Newhouse will get one-third of the new company's shares. Malone will get about 20% of the voting power and Advance/Newhouse will have a certain amount of veto power, to be determined when the contract is signed.

Discovery Holding and Advance/Newhouse will combine their stakes in Discovery Communications in a deal that will create a new holding company for the cable programmer.

Under the terms of the transaction, which has been talked about since September, Discovery Holding will spin off to its shareholders a wholly owned subsidiary holding the networks and creative services businesses of Ascent Media Group. Discovery Holding, which owns 66% of Discovery Communications, will then combine with a newly formed holding company into which Advance/Newhouse will combine its 33% stake in Discovery Communications. With the completion of the deal, the new holding company will own 100% of Discovery Communications.

In exchange for its stake, Advance/Newhouse will receive preferred stock that can be converted into common stock representing 33% of the outstanding stock in the new holding company. With the preferred holding, Advance/Newhouse can elect two members to the holding company’s board and has approval rights for “specified actions” by the holding company and Discovery Communications.

“Our goal in creating Discovery Holding Co. was to highlight Discovery Communications as the world's leading provider of nonfiction programming and to create a vehicle through which the company could continue to expand and grow," Discovery Holding president Robert Bennett said in a statement.

"This transaction further perfects the structure and sets the stage for continued expansion of the Discovery brand and its wonderful products and services both domestically and across the globe," he added.

The transaction is expected to close in the second quarter of 2008.