Wall Street may soon have another channel to watch.
Discovery Communications, one of the biggest cable-programming companies in the U.S., will soon join the ranks of publicly traded television companies as the result of an agreement between its two shareholders, cable magnate John Malone's Discovery Holding Co. and Advance/Newhouse Communications, an affiliate of the Newhouse family. The two announced a nonbinding agreement to combine their shares into a new public company.
Going public will make it easier for Discovery to expand, by giving it a currency it can use in acquisitions. Discovery's networks include Discovery Channel, Animal Planet and TLC.
The deal comes as Discovery management, led by a new chief executive, has been working to overhaul the company, which has suffered in recent years from stagnant ratings at some key channels and problems with other businesses, including a chain of retail stores.
The agreement, which follows months of negotiations, is the culmination of a years-long effort by Mr. Malone to make Discovery a public company. Until 2005, the cable-programming concern was roughly 50 percent-owned by Mr. Malone's Liberty Media Corp., with the other 50 percent owned equally by Advance/Newhouse and Cox Communications Inc. Each of the three had the right to veto major decisions.
In 2005, as part of a bigger effort to simplify Liberty's holdings, Mr. Malone spun off Liberty's interest in Discovery into a new company, Discovery Holding Co. Shareholders in Liberty got shares in Discovery Holding, including Mr. Malone, who became chief executive of the new company.
At the time, Liberty executives said they hoped the other two shareholders in Discovery, Advance/Newhouse and Cox, would put their stakes into the new company as well, to effectively make Discovery a public company. But at that time, the three parties couldn't agree on terms to take the company public. Tax issues were one of the obstacles.
Earlier this year though, Cox agreed to sell its stake to Discovery Communications. That left the cable concern owned two-thirds by Discovery Holding and one-third by Advance. It also cleared the path for Thursday's deal, which appears likely to be tax-free to Discovery Holding and Advance/Newhouse, according to Robert Willens, a tax and accounting analyst at Lehman Brothers.
Advance/Newhouse will be given one-third of the shares in the new company. Mr. Malone, who owned shares giving him a 31 percent voting stake in Discovery Holding as of April, will end up with close to 20 percent of the voting power in the new company.
As part of the deal, Advance/Newhouse is keeping some of its veto rights over major decisions, though precise details won't be finalized until a contract is signed. There is a broad understanding of how those rights will work, but "we need to work on the final language," said Bob Miron, Advance/Newhouse's chairman and chief executive.
Discovery's current chief executive, David Zaslav, will retain his position. The former NBC executive, who took over at Discovery in January, has refocused the company's suite of channels and cut the work force by about 26 percent to about 3,300 employees. Partly as a result, operating margins through the third quarter of 2007 were 29 percent, compared with 24 percent in the year-earlier period, according to a Discovery Communications spokesman.
Ratings at Discovery's biggest channels are also largely up.