Liberty Interactive Corp. (NASDAQ: QVCA, QVCB, LVNTA, LVNTB) says it has agreed to acquire Alaskan communications services provider General Communication, Inc. (GCI; NASDAQ GNCMA) for $32.50 per share in value. The transaction represents an undiluted enterprise value for GCI of $2.68 billion and undiluted equity value of $1.12 billion, according to Liberty. The acquisition will set off a series of falling dominoes that will see the creation of GCI Liberty as a standalone company and Liberty Interactive transform into QVC Group Inc.
Executing Liberty's full plans will require a rather complicated flurry of financial wheeling and dealing in which certain assets and liabilities of one of its two tracking stock groups, Liberty Ventures Group, combined with GCI to create GCI Liberty Inc. in exchange for a controlling interest in the new company. Then, Liberty Interactive will conduct a tax-free separation of its controlling interest in GCI Liberty to the holders of Liberty Ventures common stock in full redemption of all outstanding shares of that stock. What's left of Liberty Interactive will shift to QVC Group, Liberty Interactive's other tracking stock group, and Liberty Interactive will assume the QVC Group Inc. name.
Let's walk through this one slowly. To start, GCI shareholders will receive the $32.50 per share in the form of $27.50 per share in GCI Liberty Class A common stock and $5.00 in newly issued Series A preferred shares, based on a Liberty Ventures reference price of $43.65. Then, Liberty Interactive will combine its entire equity interests in Liberty Broadband, Charter, LendingTree, Inc., the Evite operating business, and certain other assets and liabilities (including, subject to certain conditions, the FTD Companies, Inc. equity interest) with the GCI assets to create GCI Liberty. Liberty Interactive will acquire a 77% undiluted equity interest and 84% undiluted voting interest in GCI Liberty in exchange for these contributions.
Holders of Liberty Ventures common stock then will receive one share of the corresponding series of GCI Liberty common stock in redemption for each share of Liberty Ventures stock held at the time of the redemption. When the dust settles, former GCI shareholders will own 23% of the undiluted equity and 16% of the undiluted voting power of GCI Liberty, and former Liberty Ventures shareholders will own the remaining equity and voting interests in the separated company.
GCI Liberty will remain an Alaska corporation as of the closing. However, Liberty Interactive says it expects GCI Liberty will quickly call a special meeting of shareholders to vote on a proposal to reincorporate in Delaware. Liberty Interactive expects the split off of GCI Liberty to complete by the first quarter of 2018.
While all this is going on, Liberty Interactive will begin to recast itself as QVC Group Inc., with the following Liberty Ventures assets moving to the existing QVC Group tracking stock group:
- Exchangeable debentures with maturities in 2029, 2030, 2031, and 2043, including tax attributes and recapture liabilities, and certain of the exchangeable bonds maturing in 2046
- A portfolio of green energy investments
- Approximately $329 million in cash (based on current valuations)
- Liberty Interactive's entire equity interest in ILG (currently 16.6 million shares)
- Tax attributes related to equity awards from prior spins
- De Minimis amounts of Time Inc. and Time Warner Inc. shares.
The QVC Group currently comprises such assets as Liberty Interactive's subsidiaries QVC, Inc. and zulily, llc, and its interest in HSN, Inc.
"We are pleased to announce this transaction with GCI," said Greg Maffei, Liberty Interactive's president and CEO. "GCI is the largest communications provider in Alaska, generates solid cash flow with upside potential, and is a strong fit with the largest businesses in Liberty Ventures. This transaction will ultimately create a standalone Liberty Ventures, reducing the tracking stock discount and enabling an asset-backed QVC Group."
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