Discovery Closer to Going Public

By Frank Ahrens
Washington Post Staff Writer
Saturday, September 22, 2007

The parent company of Discovery Communications said yesterday that it was in preliminary talks to buy out shareholder Advance/Newhouse Communications, another step toward taking Discovery public.

John Malone's Discovery Holding owns a majority of Discovery Communications, a privately held cable television company in Silver Spring. When Discovery Holding bought Cox Communications' 25 percent stake in the cable network in March, it was expected to pursue a similar strategy with Advance/Newhouse's 34 percent stake. Discovery Communications founder John S. Hendricks also owns a small stake of the company.

Discovery's channels are home to popular shows such as "Dirty Jobs," "Man vs. Wild" and "Deadliest Catch."

In a filing yesterday with the Securities and Exchange Commission, Discovery Holding said it was negotiating a deal under which it would give Advance/Newhouse shares of Discovery Holding in exchange for its stake in Discovery Communications.

The talks were reported by Pali Capital analyst Richard Greenfield on the company's blog. Greenfield talked to Malone during his company's analyst meeting yesterday. Malone also owns Liberty Media, which holds stakes in a number of ventures, including the QVC shopping channel and media giant Time Warner.

"Terms sheets are being traded back and forth between [Discovery Holding] and Newhouse," Greenfield wrote on the blog, adding that he had "spent a few minutes" with Malone at the meeting. "Both sides in favor of a deal, simply governance issues to finalize," he wrote.

Discovery Communications declined to comment. Representatives for Discovery Holding could not be reached for comment.

Discovery has more than 100 channels, which it says reach a worldwide audience of 1.5 billion. The company is moving aggressively to reshape itself under chief executive David Zaslav, who took over in January. The company has announced plans to lay off as much as 25 percent of its workforce and shut its 103 Discovery stores as it retools for digital delivery of its content.

On the corporate side, the company is working to unwind its complicated ownership structure to make Discovery more attractive to potential investors during an anticipated initial public offering.

Greenfield wrote that Malone's company would buy out Advance/Newhouse at market value, instead of at the premium that some expect. Malone is not opposed to Advance/Newhouse retaining certain rights over Discovery Communications, including the right to block a sale of Discovery Communications or the hiring of a new chief executive, Greenfield wrote.

He added that Malone has "no interest in selling [his stake in Discovery Communications] in the next couple of years." Malone said there is "way too much revenue/margin opportunity" in the cable networks, Greenfield wrote.

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