LSATA, LMGA: Liberty & News Corp. Starting the Process? Possibilities Infinite
Broker: Ladenburg Thalmann
MORNING MEETING NOTE September 25, 2000
Robert G. Routh 212.409.2085 / David J. Brenner 212.409.2040
Liberty Satellite & Technology, Inc. (LSATA-$8.81-OTC Bulletin Board)
Current Rating: Buy
Liberty Media Group (LMGA-$18.25-NYSE) Current Rating: Strong Buy
LMGA, LSATA, LDIG: Liberty & News Corp. Starting the Process? The Possibilities
to Create Value are Infinite
* Last Friday it was reported that Liberty Media Group and Rupert
Murdoch's News Corp. were close to announcing a transaction that would
effectively give LMGA 20% control of the Australian Media Giant and an unknown
equity percentage in Sky Global Networks via an exchange offer involving
Liberty's equity in Gemstar.
* Although such reports have not yet been verified by either
company, we believe the reported transaction makes sense from all vantage
points and is in line with what we have been saying regarding Liberty Media
Group over the past several months.
* We believe that any transaction involving Liberty and News
Corp. will ultimately result in the two entities making some type of offer for
GMH, which logically would fit in with Sky Global Networks.
* In addition, we think that the Sky Global equity received by
Liberty Media Group would in some fashion be lumped into Dr. Malone's Liberty
Satellite and Technologies entity (LSATA), as this vehicle would be the proper
place for the equity in that asset.
* We think that the recent news reports regarding such a large
transaction could help explain why Mr. Vogel and Mr. Howard opted to ankle
ICGX, as they may have significantly more important issues to address in the
near-term that trying to turn around the fledgling CLEC.
* We are reiterating our Buy rating on shares of Liberty
Satellite and Technology (formally TCI Satellite, Inc.) and our Strong Buy
rating on shares of Liberty Media Group (LMGA) and advise investors to continue
purchasing shares of all Liberty-related equities we follow (LMGA, LSATA,
LDIG) as we believe the potential for Liberty-related entities and News Corp.
related entities to leverage assets off one another to significantly highlight
equity value in the not-too-distant future is tremendous.
Late on Friday, it was reported in both the FT and the LA Times that Rupert
Murdoch and John Malone were close to engineering a stock swap that would in
effect give Liberty Media Group an approximate 20% equity position in News
Corp. (second in size only to the Murdoch family) as well as a seat on the
Australian media conglomerate's Board of Directors in exchange for Liberty
Media Group's equity in Gemstar (GMST).
In addition to the equity in News Corp., LMGA is expected to receive an
undisclosed equity percentage in Mr. Murdoch's Sky Global Networks platform,
expected to go public later this year.
We believe that such a transaction makes a large degree of sense, as the two
media powerhouses together would stand a greater chance of securing GMH (a
North American DTH platform covering the only hole in Sky Global's world) and
significantly increasing the profitability of said entity given the programming
discounts the two companies together could offer to a domestic DTH provider.
We also believe that consolidating Gemstar within Sky Global Networks makes
sense and that Liberty Satellite's Mr. Vogel would be the likely operator of
DirectTV were Liberty and News Corp. to secure that asset, given that this is
his area of expertise. (In fact, we think a logical purchase group for GMH
would include Pegasus (PGTV), General Electric, Sky Global (NWS), LSATA/ LMGA,
and possibly Microsoft (MSFT).
Looking to the future, we think Dr. Malone's various international cable and
programming assets - combined with Rupert's Global satellite distribution and
programming entities - could result in the creation of the preeminent provider
of media content in the world with the ability to further highlight each
other's assets (such as Open and Liberty Digital) by pursuing a plan of
cooperation rather than competition. As we have said before, a geographic
product line restructuring of all forms of content and distribution (wireless
and wireline) may not be too far fetched.
This is in line with everything we have been saying with respect to Liberty
Media Group and Liberty-related entities over the past several months.
In light of recent transactions such as TWX/AOL and Seagram's/Vivendi, we think
what is being reported regarding News Corp. and Liberty getting closer makes
sense and may be just a hint of what is to come with the two companies. As we
say above in the bullet points, the possibilities are infinite. |
