When DirecTV Group Inc. CEO Chase Carey explained to investors how the company's merger with a division of Liberty Media Corp. would improve the satellite broadcaster's flexibility, he said the strategic options after the deal would range from "A to Z."

An investor might be excused for assuming Carey misspoke, and really meant to say "AT&T."

The $14.6 billion merger of Liberty Entertainment Inc. and DirecTV, announced in early May, has long been anticipated. Liberty Media will spin off the unit, which includes a 54% stake in DirecTV, and merge it with the satellite broadcaster through one of the tax-free maneuvers in which John Malone's media company specializes.

The deal will simplify DirecTV's ownership structure at a time when AT&T Inc. is trying to expand its video service. DirecTV recently upgraded a marketing pact with the Dallas telecom, and a buyout would allow AT&T to expand in areas where it is not profitable to string fiber. Aside from the timing of the deal and the strategic confluence between the companies, there is also the fact that Malone, who will hold a 24% stake in the post-merger pay-TV company, has made a great deal of money selling assets to companies named AT&T.

As with most of Malone's deals, the DirecTV merger is defined by sophisticated tax analysis and an equally complicated wager about how the future of communications and media will take shape. It can be difficult to tell which is the guiding principle, tax efficiency or strategic vision, in Malone's calculus.

Under the proposed transaction, Liberty Media will spin off Liberty Entertainment and merge the business with DirecTV. In turn, DirecTV is essentially buying back its stock at a slight premium. The satellite broadcaster will give Liberty $12.7 billion in its shares, based on its May 1 close, and assume about $1.85 billion in debt.

In exchange, DirecTV gets $13.5 billion of stock Liberty holds, as well as content assets including FUN Technologies, three regional sports networks and the Game Show Network. The deal implies that the content assets are worth roughly $1.1 billion, meaning each side gives and receives $14.6 billion in value.

The deal will also create another Liberty Media house special, a new tracking stock. In addition to the soon-to-be-liberated Liberty Entertainment, the company has a Liberty Capital Inc. tracker, representing shares in companies such as Time Warner Inc. and Sprint Nextel Corp., and Liberty Interactive Inc., reflecting assets such as the QVC home shopping channel.

Following the DirecTV deal, Liberty Entertainment shareholders will receive equity in Liberty Starz. The new issue will track the value of movie service Starz Entertainment, a 37% stake in satellite broadband provider WildBlue Communications Inc. and other assets.

DirecTV chief Carey acknowledged his company is paying "a low-single-digit premium," during the May call announcing the deal. In return, it receives a new sense of independence.

"You're finally not going to be owned by another major corporation," says Jefferies & Co. special situations strategist Andy Baker.

Malone will chair the company. But for the first time, DirecTV will not be folded within a larger company.

General Motors Corp.'s GM Hughes Electronics Corp. unit launched DirecTV in 1994. Rupert Murdoch's News Corp. paid GM $6.6 billion in 2004 for its controlling stake in Hughes Electronics and changed the name of the business to DirecTV Group.

Murdoch's deal with GM was a bet on the convergence of content production and content distribution. Murdoch apparently decided that ridding himself of Malone's ownership in his company was more valuable than owning a satellite TV operator, after Liberty exchanged nonvoting shares for a voting stake in November 2004.

He and Malone agreed to exchange Liberty's position in News Corp. for a 38.4% stake in DirecTV and other assets in 2006.

The story of how Malone obtained his News Corp. stake is a complex tale of asset shifting in itself. Malone and Murdoch started the sports content venture Fox/Liberty Networks in 1994, the same year that GM Hughes launched DirecTV. Another Liberty-backed venture, Gemstar Corp., merged with News Corp.'s TV Guide unit in 2000.

Malone swapped Liberty Media's interest in Fox/Liberty for an 8% News Corp. stake in 1999, and picked up more shares of the company in 2001 when Liberty exchanged a 21% stake in Gemstar-TV Guide for News Corp. stock.

The spinoff of Liberty Entertainment Inc. and coordinated merger of the unit with DirecTV provides closure to the string of deals between Malone and Murdoch. "Liberty gets rid of the tax liability it incurred with its old News Corp. stake," Jefferies' Baker says. "This is what they've been trying to do for a decade."

The transaction with DirecTV fits the Malone mold in other ways. "It harkens back to what Liberty International did with UnitedGlobalCom," says Chris Marangi of Mario Gabelli's Gamco Investors Inc.

In 2004 the company spun off Liberty International, a cable outfit holding a stake in UnitedGlobalCom. The following year, Liberty International merged with UnitedGlobalCom in a $3.5 billion deal to create Liberty Global Inc. Though Liberty International held a controlling stake in UnitedGlobalCom, the deal was structured so that equal value exchanged hands.

There are several similar examples. Malone's swap of News Corp. shares was tax-light. Liberty Media spun off Discovery Holding Co. to shareholders. Liberty Media returned shares to Time Warner in exchange for the Atlanta Braves baseball team, a needlework and how-to publisher and $960 million in cash. The company spun off Discovery Holding in another deal that avoided a change in control and a bill from the Internal Revenue Service.

Malone's aversion to taxes is so well known that at times it can be possible to overlook the substance of Liberty's portfolio. DirecTV shares have outperformed News Corp. since Malone and Murdoch made their swap. It's difficult to argue that Liberty erred by reducing its Time Warner stake.

CEO Greg Maffei came on board in the last several years to help transform Liberty from a holding company into more of an operating company. During the conference call announcing the DirecTV transaction, Maffei alluded to the possibility of a joint effort between the pay-TV provider and Sirius XM Radio Inc.

Liberty invested $530 million in Mel Karmazin's satellite radio company in February, when Sirius XM was reeling and in need of cash.

"There [are], longer term, a lot of interesting things that might transpire between Sirius XM and DirecTV," Maffei said. That could include marketing endeavors, packaging the services of the two satellite companies and joint programming. "If you want to dream the glorious dream," Maffei said, "you could think somehow about cooperation on mobile video down the road, which is well, well, really outside of our current business plan."

For DirecTV shareholders, the truly glorious dream would likely be a sale to AT&T.

Malone has history with AT&T. Granted, Malone made a fortune by selling Tele-Communications Inc. to the old AT&T, which had a penchant for overreaching megadeals. SBC Communications Inc. acquired AT&T and adopted its brand. In January, AT&T introduced a co-branded satellite television service with DirecTV. The new incarnation of AT&T is more conservative about its leverage, and the view that it will buy DirecTV is not universally held.

As the marketing pact between AT&T and DirecTV illustrates, satellite does fix a gap in the telcom's offerings.

"Our long-running thesis has been that the satellite companies combine with the telephone companies," Gamco's Marangi says.