News Corp. and Liberty Media Looking to Wiggle Out of as Much as $4.5 Billion in Taxes

Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):

How News Corp., Liberty Can Save $4.5 Billion

• Summary: New Corp. (NWS) and Liberty Media Corp. (LCAPA), in talks over an asset swap that would give Liberty control of DirecTV Group Inc. (DTV), likely plan on structuring the deal in such a way as to avoid paying taxes through a legal loophole that would save the two companies as much as $4.5 billion in combined taxes. The structure of the deal would essentially be the same as that used in "cash-rich" deals -- but with a relatively small portion of cash. News Corp. would likely transfer its DirecTV stake, valued at about $9 billion at current market values, along with about $2 billion in cash, to a new corporation created specially for the deal. It would then swap that corporation to Liberty in exchange for Liberty's roughly $11 billion stake in shares of News Corp. Such a move is likely to renew the spotlight on the controversial tax-related structure, used in the past by companies selling stock in other companies. The White House had sought to make it illegal, but backed down after pressure from large corporations.
• Comment on related stocks/ETFs: The WSJ recently ran a piece on News Corp.'s attempts to dump its share in DirecTV. John Bethel has been arguing the merits of a News Corp.-Liberty Media split for some time now.

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