Shares of Discovery Holding Co. are slated to begin trading today, giving the public a chance to invest more directly in the Silver Spring cable programmer that created "Shark Week" and "American Chopper" as it expands overseas and tries to move into educational programs for schools and homes.
The new company consists of Liberty Media Corp.'s 50 percent stake in Discovery Communications Inc., and of Liberty subsidiary Ascent Media Group Inc., a production services company based in California. The chairman and chief executive of the new company is Liberty Chairman John C. Malone.
Discovery Holding did not quite turn out the way Malone anticipated in March, when Liberty announced it would spin off its Discovery shares. Back then, Malone said he would "put a fair amount of money on the table" that Discovery's other owners, Cox Communications Inc. and Advance/Newhouse Communications Inc., would want to add their shares to the deal too -- effectively taking the cable company public.
But Cox and Newhouse, each of which owns about 25 percent of Discovery, chose not to participate for tax reasons.
As a result, the new company has an awkward structure that several analysts said may turn off investors. Discovery Holding, for example, cannot tap into the hundreds of millions of dollars Discovery Communications generates each year in operating cash. Nor does it have more say in how the cable programmer is run than Liberty Media did. Each shareholder in Discovery Communications has veto power over major decisions affecting the company.
Some analysts remain optimistic that Cox and Newhouse eventually will include their shares. But until then, several analysts said Discovery Holding shares will likely trade at a discount.
"Why will investors want to invest in a public company that has no access to the free cash flow of its primary asset" and "with zero visibility as to whether the situation ever changes?" Richard Greenfield, a media analyst with Fulcrum Global Partners LLC, wrote in a recent research note.
Because the new company is a spinoff of Liberty, the creation of Discovery Holding is treated differently than an initial public offering. No opening price for the stock has been set. Initially, 134 million shares of stock in the holding company will be distributed to existing Liberty shareholders, who as of today can trade them openly on the Nasdaq Stock Market.
Analysts have said they anticipate the stock will trade at $15 to $20 a share.
Despite the new company's shortcomings, Liberty officials maintained that the spinoff made sense, even without Cox and Newhouse's cooperation. Separating Liberty's stake in Discovery helps simplify Liberty's corporate structure, the company said in a Securities and Exchange Commission filing. And it allows investors a way of investing more directly in Discovery.
Money raised through sales of Discovery Holding shares also gives Malone a way of making acquisitions, analysts said. Malone said in May he would like to buy the National Geographic Channel and has talked about it with Rupert Murdoch, chairman of News Corp. and BSkyB, a London-based satellite broadcaster. News Corp. and BSkyB own shares in National Geographic, along with the National Geographic Society and NBC.
As a practical matter, the spinoff is not likely to affect the day-to-day operations of Discovery Communications. Spokesman David Leavy said company officials have no plans to commemorate the launch of Discovery Holding stock by framing and hanging a share of the new issue.
"There will be no framing," he said, "except for a Lance Armstrong yellow jersey."
Discovery sponsors Armstrong's bicycle team.