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Reading Into Malone's Moves

Liberty Media Corp.'s moves to acquire a large voting stake in News Corp. could be a vehicle for Liberty chairman John Malone to influence future leadership changes at the Australian media conglomerate, analysts said last week.

Liberty said that it acquired a 9.15% voting stake in News Corp. through a series of complicated transactions that made it the largest individual holder of News stock and the second-largest voting shareholder, behind News chairman Rupert Murdoch's 30%.

Liberty said it swapped 21.2 million nonvoting News shares and $693 million in cash [raised mainly by the sale of nonvoting shares on the open market] for 48 million shares of voting stock.

About 26 million News voting shares were purchased over the past year. On Jan. 20, Liberty bought another 22 million voting News shares.

Liberty still controls 210.8 million nonvoting shares.

There was published speculation last week that Malone could be moving toward a takeover bid. But Australian Stock Exchange regulations prohibit foreign investors from owning more than 10% voting control of an Australian company (News is based in Sydney) without obtaining permission from the Australian government.

One person familiar with News also said that even were Liberty to achieve government approval for a hostile takeover, a change of control would trigger a "poison pill" that would make all of News's debt payable immediately.

"I don't think anyone is going to want to cop an $8.7 billion debt payment on day one," said the person familiar with the situation.

The sudden interest in News voting shares puzzled some analysts, given the Murdoch family's continued lock on News control. But Liberty, in a statement, called it merely a good investment.

"We have capitalized on an opportunity to exchange nonvoting shares for voting shares at attractive prices to become the second-largest voting block in one of the world's premier media companies," Liberty president Robert Bennett said in a statement.

Some analysts were surprised at how secretive Liberty had been: Liberty didn't tell News about the 26 million voting shares it acquired over the past year in addition to the Jan. 20 transaction.

One analyst saw a link to News's recent $6.6 billion acquisition of a 34% control stake in DirecTV Inc. parent Hughes Electronics Corp.

Janco Partners cable analyst Matt Harrigan said that had Liberty disclosed to News it was buying voting shares on the open market, News would have had to disclose that immediately. That could have affected News stock, effectively raising the price paid (in stock) to Hughes parent General Motors Corp.

Harrigan was skeptical about any plan Malone would have to gain more influence at News, but said Malone could gain more say in any possible succession plans, if and when Murdoch retires or dies.

Sources at both companies said Malone has not asked for a seat on News Corp.'s board of directors.

In an interview with The Times of London published Jan. 23, Murdoch said Malone called him before he bought the stock. "It's very friendly," Murdoch said in the report. "He is very welcome. He called yesterday and told me about it."

Stifel Nicolaus & Co. cable analyst Ted Henderson said Liberty made money on the transactions. He that Liberty's cost basis on the nonvoting stock at $20 to $30 per share, and they now hold voting shares worth about $38 each.