Business Context and Reporting Period
This Form 8-K Current Report was filed by Liberty Media Corporation on October 26, 2016. The filing serves as a Regulation FD disclosure regarding the potential impact of the proposed acquisition of Time Warner Inc. by AT&T Inc. on Liberty Media's outstanding 2.25% Exchangeable Senior Debentures due 2046, which were issued in a private offering closed on August 17, 2016.
Key Financial Metrics and Instrument Details
- Debt Instrument: $444,614,000 aggregate principal amount of 2.25% Exchangeable Senior Debentures due 2046.
- Underlying Asset: Currently exchangeable for Time Warner Inc. common stock (9.5652 shares per $1,000 debenture).
- Interest Rate: Fixed at 2.25% per annum on the original principal amount.
- Proposed Transaction Value: AT&T's acquisition of Time Warner is valued at $107.50 per share ($53.75 cash, $53.75 stock).
Material Changes and Contingencies
The filing details adjustments to the debentures contingent upon the consummation of the AT&T-Time Warner merger:
- Extraordinary Cash Distribution: If the merger closes, holders will receive an extraordinary distribution of $514.1295 per $1,000 original principal amount, representing the cash portion of the acquisition consideration.
- Principal Adjustment: The outstanding principal amount will be reduced by the extraordinary distribution, resulting in a new adjusted principal of $485.8705 per debenture.
- Reference Share Conversion: The stock portion of the acquisition will convert the underlying reference shares from Time Warner to AT&T common stock. Depending on AT&T's stock price at closing (subject to a collar), each $1,000 original principal debenture will be attributable to approximately 12.4348 to 13.7452 shares of AT&T common stock.
- Rate Maintaining Adjustments: Future interest payments will be adjusted based on the reduced principal amount to maintain the effective yield.
- Dividend Excess Distribution: Additional distributions will be made if regular quarterly cash dividends on the new AT&T reference shares exceed $3.85 per debenture.
Guidance, Outlook, and Risks
The filing does not provide financial guidance or management commentary on Liberty Media's operating outlook. The primary risk and contingency identified is the uncertainty of the AT&T-Time Warner transaction closing. The adjustments described are conditional upon the merger being consummated on the terms announced on October 22, 2016. The transaction is subject to Time Warner shareholder approval and regulatory review by the U.S. Department of Justice and potentially the FCC. The filing states that no changes to the debentures will be effected unless and until the acquisition is consummated.
Investor Verification Checklist
- Verify the status of regulatory approvals (DOJ, FCC) and shareholder votes for the AT&T-Time Warner merger.
- Monitor AT&T's stock price to determine the final exchange ratio within the specified collar ($37.411 to $41.349).
- Confirm the exact closing date of the acquisition to determine the timing of the extraordinary cash distribution.
- Review the full Indenture (Exhibit 99.1) for specific terms regarding rate maintaining adjustments and dividend calculations.