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Liberty May Spawn International Trackers

Just weeks after breaking free from AT&T Corp., Liberty Media Corp. is contemplating splitting up again.

At its annual investors conference in New York last week, Liberty said it is considering splitting off its international assets into a separate tracking stock, a move that would facilitate deals to grow its international presence.

Liberty was spun off from AT&T Corp. on Aug. 10. The company had been a tracking stock of AT&T since the latter purchased former Liberty parent Tele-Communications Inc. in 1999.

Liberty's domestic assets include interests in more than 100 cable networks, including Discovery Communications Inc. and Starz! Encore. The company also has holdings in publicly traded companies like AOL Time Warner Inc. and News Corp.

The international cable market has been a major focus of Liberty's over the past year — last week it reached an agreement to purchase about 3.5 million subscribers in Germany from Deutsche Telekom AG for $4.9 billion.

Liberty has more international cable subscribers than it ever had domestically when it was part of former cable giant Tele-Communications Inc. With systems in Europe, Asia and Latin America, Liberty owns directly and indirectly about 20 million cable subscribers. At its peak in the late 1980s, TCI had about 17 million subscribers in the United States.

Liberty Media chairman John Malone said it is likely that the tracker will not be issued publicly, instead the company will issue it to private investors to avoid the current volatility in the stock market.

But with an international tracker — a stock that would track the performance of Liberty's international holdings but contain none of its assets — Liberty would have another currency to cut deals.

And plenty of deals are on the horizon.

Liberty is reportedly in talks with DT to buy its Tele-Columbus cable operations, which have about 1.7 million subscribers in Germany, for $2 billion.

The earlier DT deal involves systems that pass about 10 million homes, but because of the way that the German cable network is set up, DT has a direct connection to some 3.5 million of those homes. The remainder are homes in which DT sells service to housing associations and Level 3 operators.

At the investors meeting, president and CEO Dob Bennett said that Liberty would look to form deals with housing authorities and Level 3 operators, or possibly even buy them out.

Malone added that there are opportunities in the international arena for Liberty to become a consolidator. He added that he did not expect any competition for assets from other expected players in the market — AOL Time Warner and Microsoft Corp.

"They would rather play through us than against us," Malone said.

Liberty's other international assets include cable systems in the United Kingdom, South America and Japan. The company also owns a large stake in UnitedGlobalCom Inc., a Denver-based company that owns Dutch cable operator United Pan-European Communications Inc.

While Liberty's focus appears to be on its international investments, some of its domestic assets have been performing well too.

Discovery, of which Liberty owns a 49-percent interest, is expected to report a 2-percent gain in advertising revenue in the third quarter to $152.5 million, according to Discovery chairman John Hendricks, despite a declining ad market.

"We feel comforted by that," Hendricks said at the investors conference.

Hendricks said that Discovery also plans to take market share away from the broadcast networks, primarily through a program dubbed the "Power Block roadblock" which allows advertisers to buy time across 10 Discovery networks.

Participants in the "Power Block" program receive one 30-second spot twice a day across 10 Discovery networks with little duplication of audience. He added that research shows that only seven percent of the audience watching a rebroadcast of the same program at 12 a.m. were watching the show earlier in the day.

"We're delivering an unduplicated audience," Hendricks said. "These are real dollars. ABC, NBC, CBS and Fox, we're taking dead aim at their [advertising] dollars."