January 20, 2000
Dow Jones Newswires
IN THE MONEY: Wager On Malone Spurs
TCI Satellite Stock
By MICHAEL RAPOPORT
A Dow Jones Newswires Column
NEW YORK -- Sometimes - not often, but sometimes - there's a legitimate
reason for a stock to get ahead of itself, to trade for a much higher price than
its fundamentals would seem to dictate.
At this point, TCI Satellite Entertainment Inc. (TSATA) isn't much to look at.
It's essentially a holding company whose primary asset is a stake in General
Motors Corp.'s (GM) Hughes Electronics Corp. unit (GMH). It had no
revenue for the first nine months of 1999, and right now has no operations of
its own.
Yet the stock has quietly escalated - gaining about 1,700% over the past nine
months, and nearly doubling in the past several weeks alone. And the reason
appears to be that investors are putting their faith in the acumen of one man:
John C. Malone.
In fact, based on the numbers, investors appear to be placing a bet on
Malone worth about $800 million.
Malone, of course, is the cable-TV magnate who built Tele-Communications
Inc. into a behemoth before AT&T Corp. (T) acquired the company last
year. More importantly for current purposes, he's also the chairman and a
major shareholder of both TCI Satellite, which was spun off from
Tele-Communications before the AT&T deal, and of Liberty Media Group
Inc. (LMGA), the former Tele-Communications subsidiary that is now an
AT&T unit with its own tracking stock.
Last month, Liberty Media agreed to invest $300 million in TCI Satellite -
getting TCI Satellite preferred stock that holds 80% of the company's voting
power in exchange for a Liberty Media stake in shares of Sprint Corp. PCS
Group (PCS). Perhaps more importantly, the companies also agreed to form
a joint venture, initially 90%-owned by Liberty and 10% by TCI Satellite, that
will hold interests in companies that distribute high-speed data via satellite -
so-called "satellite broadband" businesses.
Liberty has said it intends to use the joint venture to consolidate its various
satellite-related assets. That has sent TCI Satellite shares soaring, on optimism
that Malone and Liberty will make shrewd, profitable bets in the wireless
broadband sector and that TCI Satellite will share in those opportunities
through the joint venture.
"I view the joint venture as the umbrella under which Liberty's broadband
strategy will be played out," said Ted Henderson, an analyst with Janco
Partners Inc. in Denver. TCI Satellite shareholders, he said, are buying up the
stock because of the opportunity "to own very attractive wireless assets and
to be positioned with someone who's a dealmaker."
Investors are "optimistic" about Malone's ability to pick winners, Henderson
said, and certainly Liberty seems to have designs toward becoming a bigger
player in broadband transmission of video and other data. In December, it
invested $425 million in Astrolink LLC, a wireless broadband venture, and
also established an alliance with Cendant Corp. (CD) that involves distribution
of broadband video. Liberty also recently completed its acquisition of
Associated Group Inc., the biggest shareholder of wireless phone company
Teligent Inc. (TGNT).
Besides the benefit of Malone's savvy, TCI Satellite will get $300 million in
fresh capital with which it can make acquisitions of its own - and can use its
own surging stock as a currency toward that end as well.
As recently as last April, both classes of TCI Satellite stock traded for about
a dollar a share; by last month, they had broken into double digits, and they've
gotten as high as 20 since then. The company's Class A stock closed
Thursday at 17 3/4; the more thinly traded Class B stock closed at 18 1/2.
Liberty Media stock has also gained, albeit less dramatically. Liberty's Class
A shares have risen from 49 7/16 to 55 since the December agreement was
announced; its Class B shares have gone from 56 1/4 to 66 1/2.
As for that $800 million bet: At current prices, TCI Satellite's market
capitalization has surged to nearly $1.3 billion. But as of right now, it
effectively has assets worth less than $500 million: Its 1.4 million GM Hughes
shares have a market value of about $170 million, the deal with Liberty will
add another $300 million in capital, and the company has another $9 million
or so in scattered small assets. Buyers of TCI Satellite's stock are apparently
hoping Malone and the joint venture will help close that gap.
In driving up TCI Satellite's stock price in advance of any further activity by
Liberty Media and Malone, then, investors may be putting the cart before the
horse, Henderson acknowledged. But in this case, "the guy driving the horse
has a track record of being very productive."
Now it's up to Malone and Liberty. Will they buy more satellite and wireless
assets? Will they add those assets to the joint venture with TCI Satellite? And
will that enrich TCI Satellite shareholders?
Spokesmen for both Liberty and TCI Satellite couldn't be reached for
comment Thursday.
-Michael Rapoport, Dow Jones Newswires, 201-938-5976,
michael.rapoport@dowjones.com |
