Liberty Media Corp with its other media assets to form a new company.

Liberty, controlled by cable pioneer John Malone, plans to combine DirecTV with assets held by Liberty Entertainment including Game Show Network, FUN Technologies and three regional sports networks. Liberty owns a 54 percent economic stake in DirecTV.

The new company will retain the DirecTV name and still be led by current Chief Executive Chase Carey, with Malone remaining as chairman of an unchanged board. But Malone's voting stake will fall to 24 percent, from the 48 percent that Liberty Media currently has.

Holders of Liberty Entertainment shares will receive 1.1111 shares of DirecTV Class A for each share. That translates to DirecTV paying a premium of around $350 million.

At current prices, it's a better deal for Liberty Media than it is for DirecTV, said Thomas Eagan, analyst at Collins Stewart.

Eagan said investors will view the fact that DirecTV bought Liberty Entertainment rather than the other way round as a positive in Liberty Media's favor. John (Malone) not wanting to buy DirecTV got DirecTV to buy him, said Eagan.

Shares in Liberty Media rose 3.62 percent to $25.21 in early afternoon trading, while DirecTV shares were down 2.6 percent to $23.93.

Carey said the move meant DirecTV will now be controlled by its own shareholders for the first time and that Malone's interests will be more closely aligned with those of other DirecTV shareholders.

At 24 percent, it's a very different position from a 48 percent controlling position. It's obviously a very large voice but it's not control, Carey said in an interview.

Analysts said the move made it less likely that DirecTV would be sold to AT&T Inc or any other buyer.

While DirecTV gains strategic control, and the random assets it's getting could be sold, we'd view an acquisition by AT&T as less likely in the near term, said Gregory Lundberg, analyst at Communications Equity Research in a client note.

Liberty acquired its stake in DirecTV in February 2008 in exchange for a stake it held in News Corp , which previously controlled DirecTV.

Since that exchange News Corp's shares have fallen more than 50 percent while DirecTV has outperformed most media stocks with a fall of just 11 percent.

EXPECTED MOVE

The move to split off DirecTV, which was expected by Wall Street, helps to resolve a long-standing discount between the market value of the Liberty Entertainment tracking stock and the assets it owned including DirecTV.

Liberty Entertainment's 54 percent stake in DirecTV was worth more than Liberty Entertainment's total market capitalization, allowing many investors to devise arbitrage trading strategies to own DirecTV via the tracking stock.

This transaction clarifies DirecTV's capital structure, reduces its shares outstanding, eliminates stock overhang and arbitrage issues, and provides DirecTV with strategic content businesses, Liberty Media Chief Executive Greg Maffei said in a statement.

Each shareholder of Liberty Entertainment tracking stock will receive 0.9 of a share of Liberty Entertainment and retain 0.1 of a share of new Liberty Starz tracking stock, which covers its Starz TV assets.

Liberty Starz will consist of Starz Entertainment, 37 percent of satellite broadband operator WildBlue, $650 million in cash and other assets. It is expected to trade under the LSTZA and LSTZB symbols on Nasdaq.

Liberty took a controlling stake in satellite radio company Sirius XM Radio Inc earlier this year and analysts have speculated that Liberty could combine it financially or strategically with DirecTV's satellite assets.

Maffei told analysts on a conference call there were strategic opportunities to work with Sirius in the future.

There could be some synergy around marketing and bundling, there could be some programing initiatives, and if you want to dream the glorious dream you could think somehow about cooperation around mobile video down the road, he said.

(Reporting by Yinka Adegoke; Editing by Derek Caney, Tim Dobbyn, Leslie Gevirtz)

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