Liberty Media to Split Off Liberty Live, with Tax-Free Qualification Relying on ATB Expansion

By Stuart E. Leblang, Michael J. Kliegman and Amy S. Elliott

Liberty Media Corporation (Liberty Media) announced^[1]November 13 that, in the second half of 2025, it plans to separate off (by way of a split-off effected by redemption) certain assets attributed to the Liberty Live Group (including its approximate 30-percent interest^[2] in Live Nation Entertainment, Inc. (NYSE:  LYV) (Live Nation)) into a standalone, newly formed public company (Liberty Live, Inc. or Splitco), doing away with the Liberty Live tracking stock.  In connection with and immediately before the split-off, QuintEvents, LLC (Quint, a business that Liberty Media acquired for $313 million cash in January[^3] that offers expanded entertainment opportunities at sporting and other live events) will be reattributed from the Formula One Group to the Liberty Live Group in exchange for certain private assets.  The transaction is intended to be tax-free to Liberty Media and the Liberty Live, Inc. shareholders.^[4]

Following the split-off, Liberty Media will only hold assets associated with the Formula One (commonly known as Formula 1 of F1 auto racing) and MotoGP (motorcycle racing) businesses.  In April, Liberty Media announced the planned acquisition of 86 percent of Dorna Sports, S.L. (the rights holder of MotoGP), which is expected to be completed by year-end 2024.^[5]

We have written extensively about the Liberty Media businesses and the tax issues associated with Liberty Media’s tracking stock structure, which it has been spending the last few years unwinding.^[6]At one time, Liberty Media shares were divided among three tracking stocks— Liberty SiriusXM (including NASDAQ:  LSXMA), Liberty Braves (including NASDAQ:  BATRA) and Liberty Formula One (including NASDAQ:  FWONA)—each corresponding to the principal underlying holdings associated with the stock.

In July 2023, Liberty Media split off its 100-percent ownership of the Braves into a separate, publicly traded company and created a new Liberty Live tracking stock associated with its interest in Live Nation (including NASDAQ:  LLYVA).  Then, in September 2024, Liberty Media split off its 83-percent Sirius stake before merging it with Sirius XM Holdings Inc. (NASDAQ:  SIRI), leaving Liberty Media with only two tracking stocks (Formula One and Liberty Live).

The transaction separating off Liberty Live will bring an end to Liberty Media’s tracking stock structure.  Liberty Media President and CEO Greg Maffei, who also announced he will be stepping down from his role at the end of 2024,^[7]explained that by simplifying the Liberty Media capital structure, the deal “should reduce the discount to net asset value of our Liberty Live stock and enhance trading liquidity at both entities.”^[8] Another offered rationale was to “better enable potential future business combinations.”^[9]

Expansion Doctrine

In order for a spin-or split-off transaction to be tax-free under Section 355 of the Internal Revenue Code (IRC), each of Spinco (or Splitco) and Remainco must be engaged in an active trade or business (ATB) that had been continuously carried on by Distributing for at least the previous five years or, if not, then it must not have been acquired during the five-year period in a taxable transaction.^[10]

Liberty Media achieved five-year ATB status for Formula One in January 2022 (the five-year anniversary of its January 23, 2017 purchase of the parent company).  So Remainco’s ATB is solid.  But because Liberty Media only holds a 30-percent interest in Live Nation, the stake does not qualify as an ATB (ownership of an 80-percent or more stake of a subsidiary engaged in an ATB may qualify as an ATB).  And so, we embark—not for the first time—on a search for the hidden Liberty Media ATB.

During Liberty’s November 14 Investor Day, Maffei confirmed that they will be looking to Quint to serve as Splitco’s ATB.  Having purchased Quint for cash this past January, it cannot qualify as an ATB as a stand-alone, newly acquired business.  The company must, instead, be planning to rely on the well-established “expansion” doctrine, which provides that where a corporation that is already engaged in an ATB (in this case, Formula One) makes one or more taxable purchases of business operations that merely expand the scope of that ATB, the acquired assets may be spun without waiting for five years.^[11]

From the little that we can discern, Quint’s business is to work with event organizers and venues to enhance customers’ experience in various ways (create VIP lounges, behind-the-scenes experiences, etc.).  It has been working with Formula One for several years, and its business is at least closely complementary to Formula One’s, though presumably not duplicative of Formula One’s business.  Liberty Media pointed out in its release on the transaction that “Quint is also complementary to our interest in Live Nation, especially as Live Nation works to grow its hospitality operations.”^[12] It will be up to Liberty Media and its tax counsel to persuade the Internal Revenue Service (IRS) that the Quint purchase was an expansion of Formula One’s business rather than the acquisition of a new business.  If they do not end up obtaining a private letter ruling, then we expect that the company’s tax counsel has already indicated its willingness to opine favorably on the issue.

Finally, we note that the IRS has signaled its antipathy to Section 355 transactions where there will be significant ongoing relationships between the purportedly separated companies.  It is clear that the Formula One-Quint commercial relationship will continue after the proposed split-off, and it will be necessary to get the IRS comfortable on this point as well.

Live Nation Combination

The split-off of Liberty Live, Inc. holding a 30-percent interest in Live Nation would seem to be paving the way for the ultimate acquisition of the Splitco by Live Nation itself.  Indeed, a potential “future rationalization” facilitated by the split was mentioned at Investor Day.  There was also talk of Liberty Live, Inc.’s strong balance sheet post split-off.

Such an ultimate combination is similar in some ways to what has recently been proposed by Charter Communications, Inc. (NASDAQ: CHTR) (Charter), which announced November 13 that it has agreed to acquire Liberty Broadband Corporation (including NASDAQ: LBRDA) (Liberty Broadband) in an all-stock transaction.^[13] Liberty Broadband’s principal asset is its

32-percent interest in Charter.^[14] In advance of the combination, Liberty Broadband plans to spin off its other asset—its wholly owned subsidiary GCI, LLC—however that spin is expected to be taxable to Liberty Broadband and its stockholders (although Charter will bear the corporate-level tax liability upon completion of the combination).^[15]

In general, a tax-free spin-off followed by a pre-planned tax-free combination of either Remainco or Spinco with another company is not possible, unless (as is the case in so-called Reverse Morris Trust transactions) the merger partner is small enough relative to Remainco or Spinco that Remainco’s shareholders will retain a majority interest in the post-merger company (pursuant to section 355(e)).

When it comes to post-spin acquisitions, Treasury regulations detail when exactly a merger and a spinoff might be deemed to have been conducted as part of a plan (triggering tax to the Distributing corporation).  For example, if management was careful not to have engaged in discussions about a possible business combination in the two years prior to the spin-off and continues its caution for another six months after the spin before entering into an agreement, understanding, arrangement or substantial negotiations regarding a combination (and assuming the spin-off was motivated by a business purpose not involving the subsequent acquisition), then the acquisition will generally not be deemed to be part of a plan.^[16]

In this case, it is safe to assume that Maffei and his team were careful on this front, as Maffei has previously admitted that he has a pillow in his office that says “no plan or intent.”^[17] So while we would not be surprised if such a combination came to pass some time after the split, we would expect it to occur several months after at the earliest

^{[1] Press Release, Liberty Media, Liberty Media Corporation Announces Plan to Split Off Liberty Live Group (Nov. 13, 2024) (https://www.libertymedia.com/investors/news-events/press-releases/detail/550/liberty-media-corporation-announces-plan-to-split-off).}

^{[2] Live Nation Schedule 13D/A filed Nov. 14, 2024 (https://www.sec.gov/Archives/edgar/data/1335258/000110465924119014/tm2428435d1_sc13da.htm).}

^{[3] Press Release, Liberty Media, Liberty Media Corporation Completes Acquisition of Quint (Jan. 3, 2024) (https://www.libertymedia.com/investors/news-events/press-releases/detail/523/liberty-media-corporation-completes-acquisition-of-quint).}

^{[4] Excerpts of Slides from Liberty Media Corporation 2024 Investor Day Presentations Regarding the Proposed Transaction, filed Nov. 14, 2024 (https://www.sec.gov/Archives/edgar/data/1560385/000110465924119029/tm2428305d3_425.htm).}

^{[5] Press Release, Liberty Media, Liberty Media Announces Agreement to Acquire Commercial Rightsholder of MotoGP™ (April 1, 2024) (https://www.libertymedia.com/investors/news-events/press-releases/detail/527/liberty-media-announces-agreement-to-acquire-commercial).}

^{[6] Our prior Liberty Media reports include:  “Liberty Media Proposes to Split, Merge Stake with SiriusXM” (Nov. 22, 2023); “How Many ATBs Does Liberty Media Have?” (April 27, 2023); “Liberty Media to Split Off Atlanta Braves, Create New Liberty Live Tracking Stock” (Dec. 22, 2022); “REVISED:  Could Book Income AMT Impact Potential Liberty Media ‘Spin-Off’? Liberty May Not Be in Scope.” (Oct. 25, 2022); “What Are Liberty Media’s Plans for Braves and SiriusXM?” (Dec. 28, 2020).}

^{[7] Press Release, Liberty Media, Greg Maffei to Step Down as Liberty Media CEO at Year-End in Conjunction with Transactions to Simplify Corporate Structure (Nov. 13, 2024) (https://www.sec.gov/Archives/edgar/data/1560385/000110465924117317/tm2428305d2_ex99-1.htm).}

^{[8] Supra, Note 1.}

^{[9] Supra, Note 4.}

^{[10] IRC §355(b).}

^{[11] See Treas. Reg. §1.355-3(c), Examples 7 and 8, and Estate of Lockwood v. Comm’r, 350 F.2d 712 (8th Cir. 1965).}

^{[12] Supra, Note 1.}

^{[13] Press Release, Charter, Charter to Acquire Liberty Broadband Corporation (Nov. 13, 2024) (https://corporate.charter.com/newsroom/november-13-2024/charter-to-acquire-liberty-broadband-corporation).}

^{[14] Charter Schedule 13D/A, filed Nov. 14, 2024(https://www.sec.gov/Archives/edgar/data/1091667/000110465924119241/tm2428438d2_sc13da.htm).}

^{[15] Supra, Note 13.}

^{[16] Treas. Reg. §1.355-7(d)(1).}

^{[17] Liberty Formula One Group (FWONA) Q3 2021 Earnings Call Transcript from Motley Fool:  https://www.fool.com/earnings/call-transcripts/2021/11/04/liberty-formula-one-group-fwona-q3-2021-earnings-c/}