Liberty Interactive (NASDAQ:QVCA) announced on Tuesday that it had agreed to acquire cable company General Communication (NASDAQ:GNCMA) as part of a complicated deal that will eliminate its tracking stock structure. At 1:15 p.m. EDT, shares of Liberty Interactive were up 1.5%, shares of General Communication were up 64%, and shares of Liberty Ventures (NASDAQ:LVNTA), comprised of various subsidiaries of Liberty Interactive, were up 11%.
Liberty Interactive plans to acquire General Communication through a reorganization where certain Liberty Ventures assets and liabilities are contributed to General Communication in exchange for a controlling interest. Liberty Interactive will then separate this controlling interest in a tax-free transaction, creating GCI Liberty Inc. Shares of this new company will then be distributed to Liberty Ventures shareholders in exchange for all outstanding shares.
General Communication shareholders will receive $32.50 for each share, comprised of $27.50 worth of GCI Liberty Class A common stock and $5 worth of newly issued Series A preferred shares, which will accrue dividends at a 5% annual rate and be redeemable on the 21st anniversary of the closing of the deal.
Liberty Interactive President and CEO Greg Maffei laid out the rationale for the deal by saying:
We are pleased to announce this transaction with GCI. 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 stand-alone Liberty Ventures, reducing the tracking stock discount and enabling an asset-backed QVC Group.
Liberty Interactive hopes that the discount associated with its tracking stock structure will be eliminated by this transaction. General Communication shareholders are getting a substantial premium, albeit with payment in a complicated form. An expected closing date of the deal was not given.