Media Moguls Do the Splits

Liberty Media, Time Warner, and others are creating new companies from existing businesses to unlock shareholder value

By Ronald Grover

Barry Diller, chairman and CEO of IAC Interactive Corp. Astrid Stawiarz/Getty Images

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Don't be fooled by the downsizing. Media companies in growing numbers of late are spinning off businesses or splitting themselves into two.

John Malone's Liberty Media (LCAPA) said on Sept. 3 it would create a publicly traded company out of the stock that tracks its Liberty Entertainment unit. Liberty follows Time Warner (TWX), Barry Diller's IAC Interactive Corp. (IACID), and newspaper publisher E.W. Scripps (SSP) in creating new listed companies from existing businesses. All may soon be joined by cable operator Cablevision (CVC), whose executives said in early August that they would consider selling or spinning off assets to boost a sagging share price.

After decades of building sprawling media empires defined as much by their latest conquest as by the quality of entertainment or newspapers they produce, the moguls of the world might appear to be changing their pinstripes. As if.

"The Broadband Shuffle"

Some of the world's top media companies may just be shedding noncore or incompatible businesses to give themselves leeway to nab new assets in growing areas, such as the Web and digital television. "These guys don't like to sit still," says Peter Kreisky of Boston-based Kreisky Media Consultancy. "Growth is important, and the assumptions that existed when they put together these companies in the first place no longer are valid," he says. The ability to deliver content via high-speed Internet connections, for example, has set off a new scramble for assets that he calls "the broadband shuffle."

Before bulking up, they'll need to slim down. Many big media companies are unwieldy compilations of incompatible businesses that analysts have a hard time evaluating. "The decoupling of the asset base is supposed to give investors a much clearer view of performance," says Aryeh Bourkoff, managing director of UBS Investment Banking (UBS).

The idea is for Wall Street to help bid up a company's stock price, which in turn will help some media moguls go shopping in the future. So might the hearty wads of cash held by some of the spun-off companies—a great thing to have when asset values are falling elsewhere. Take Diller, whose company is sitting on $1.3 billion in cash. The longtime media mogul-turned-Internet mogul says he wants to focus on acquisitions that are in line with his other assets, which include the Citysearch online city guides and singles site Match.com. His cash, he says, will likely be divided between stock buybacks and acquisitions. "Agglomeration is not what the market wants now or in the future," he says. "We'll either invest in our businesses or in acquisitions. But if we buy, the mandate will be, not to be serial acquirers but [to] invest in businesses we know."