In the first transaction, Liberty will buy half of a 5 per cent stake in News Corp held by MCI Worldcom Inc, for about $700 million.

According to people familiar with the complex arrangement, Malone, who controls Liberty, also will transfer Liberty's 50 per cent stake in Fox/Liberty Sports Networks LCC to News Corp, its partner in the venture, in exchange for News Corp stock. Malone will get $1.4 billion in non-voting News Corp stock in exchange for the 50 per cent of the sports venture, according to the people.

Combined, the two deals will give Malone about a 7.5 per cent stake in News Corp, making him the largest shareholder after Capital Group Inc, which owns about 8.5 per cent, and the Murdoch family, which owns about 30 per cent. Malone's stock-swap agreement is a strong vote of confidence in a company that has had a difficult timewinning over investors.

The other half of MCI WorldCom's stake-about 12 million shares-will either be bought back by News Corp for $700 million or be acquired by another strategic investor, said those close to the company.

MCI WorldCom acquired its approximately 5 per cent stake in News Corp in 1995 when News Corp and MCI Communications Corp were going to cooperate on a satellite joint venture. But that venture subsequently ran into trouble and MCI WorldCom has been looking to unload its stake since MCI and WorldCom Inc merged, people familiar with the situation said.

Both News Corp and Liberty declined to comment. An MCI WorldCom spokesman couldn't be reached for comment. Fox/Liberty Sports Networks owns and operates 12 regional cable sports channels in addition to having investments in various sizes in another nine regional sports channels not managed by Liberty. The company also owns 50 per cent of Fox Sports Net, a national sports channel, and FX, an entertainment channel that reaches about 37million homes. Talks about Liberty selling its 50 per cent stake in the sports venture to partner News Corp were reported in the Los Angeles Times.

News Corp and Liberty formed their joint venture in 1996 to challenge ESPN's dominance in the sports-television business. The two rivals, however, operate based on very different models. ESPN operates more as a traditional broadcast network by showing a few games nationally, while Fox/Liberty solely produces local coverage of sports events. Although the relationship between News Corp chairman Rupert Murdoch and Malone is very strong -- the two media moguls have cooperated in numerous ways over the years and Malone earlier held a stake in News Corp - people familiar with the situation said that by controlling 100 per cent of the sports venture, News Corp will be able to act more quickly and not be hampered by a joint board.

More than consolidating ownership and management of the sports channels under one roof, however, analysts said the move sends a strongsignal to investors that Malone is giving a vote of confidence in Murdoch by risking his own money and taking a sizable stake in News Corp.

News Corp's stock price, which has hovered around the high $20s during the past year, has traded at price/earnings multiples that lag behind those of other media giants such as Time Warner Inc, Viacom Inc and CBS Corp, as investors have worried about earnings momentum and the dilutive effects of using the stock for strategic acquisitions. Murdoch tried to address those fears last year by selling an 18 per cent stake in Fox Entertainment Group Inc to the public, but the Fox stock has risen only about $5 above its initial public offering price of $22.50 in November.

In New York Stock Exchange composite trading Thursday, News Corp's American depository receipts rose $1.0625 to $30.5625. Richard J MacDonald, a JP Morgan Securities analyst, said the deal signals that Malone "is putting down a huge vote on all of News Corp's businesses by taking News Corp stock. He'sgoing to attract a whole series of investors."The Wall Street Journal