Malone: Cable mogul prepares for spinoff from AT&T
rockymountainnews.com
By Steve Caulk, News Staff Writer
John Malone is busy these days.
Sure, that's like saying the cable television industry needs cheap sports programming. But he's even busier than usual. His Liberty Media Corp. will be spun off from parent AT&T Corp. on Friday, while the European cable markets sit ripe for conquest.
Local newspaper interviews will have to wait. Spinoff celebrations have no place on his schedule.
Most corporate executives, upon initial listing on the New York Stock Exchange, mark the event by traveling to New York for meetings with analysts and a chance to ring NYSE's opening bell. It is a ritual afforded only the most honored dignitaries.
Malone plans to miss it. On his list of priorities, it falls well below the $4.7 billion deal to acquire 10 million German cable subscribers from Deutsche Telekom. Well below the $4.4 billion deal to acquire the 8.5 million European cable subscribers from Denver-based UnitedGlobalCom. Certainly well below his semiannual family vacation in Boothbay, Maine.
Just a little more than two years removed from the sale of Englewood-based Tele-Communications Inc. to AT&T, a sale that marked a major transition in Malone's business career, Malone is back in the cable/communications business full force.
Liberty Media, the former TCI-subsidiary based in Douglas County, had performed as a tracking stock of AT&T, with Malone as chairman. Although he had full independence from AT&T, some regular business conflicts interfered with his love of deal-making.
It was difficult, for instance, for Malone to team with Rupert Murdoch's News Corp. on continuing negotiations to purchase the DirecTV satellite-TV operations, due to conflicts of interest with AT&T.
Look now for Malone to "build an international footprint," says a longtime industry acquaintance who asked to remain anonymous.
"He always has been a consummate deal-maker, and he's only improved with age," said the colleague, who has known the 60-year-old Malone for decades.
At TCI's height, Malone was completing a new deal to acquire a new cable system every two or three days. When he joined the late Bob Magness at TCI in 1973, the company was worth $5 million, and he sold it to AT&T 26 years later for $48 billion in stock.
"His motivation is about excellence," said Leo Hindery, who served as TCI's CEO from 1997 to 1999.
"John would like to be remembered as a visionary who created more shareholder value, relatively and absolutely, than any other chief executive. He takes great pride in the financial wealth that has been created for the shareholders of Liberty and TCI."
'The cable Cosa Nostra'
Others in the industry will remember Malone for his intellect, his interest in diverse topics, his mastery of finance and tax matters, his negotiating abilities, his deep understanding of technology and his passion for privacy.
Al Gore, on the other hand, will remember him as Darth Vader.
Last year's presidential candidate described Malone as the Darth Vader of "the cable Cosa Nostra" when Gore was a senator. Malone represented all that was evil in the cable industry, said Gore, who was trying to get the cable industry to respond more favorably to consumers.
Malone never responded publicly, but privately he fumed, said Hindery.
"It did hurt his feelings," said Hindery, who worked on Gore's presidential campaign. "I think it was a miscommunication. John is not without sensitivity. It is an unfortunate appellation."
Malone eventually recovered sufficiently to begin joking about the nickname. He typically doesn't expose his sense of humor in business settings, but people who know him well agree that he has a wry wit in which he likes to poke fun at competitors -- and himself.
"He took a somewhat odd delight in Al Gore having referred to him as Darth Vader," said the previously mentioned acquaintance, who called Malone a consummate deal-maker: "That was sort of a badge of honor. Others might not think of it as a good thing. But he would sometimes refer to himself as Darth Vader."
Malone once trained his wit upon Bell Atlantic Chairman Raymond Smith after a $33 billion merger with TCI fell apart in 1994.
"The Bell Atlantic deal seemed terribly implausible," said the acquaintance. "Ray Smith and John Malone were diametrically opposite. Ray needed every ounce of attention focused on him. That wasn't John. Shortly after that deal started to go south, John was saying, 'What's black and red and sleeps two? A Bell Atlantic installation truck.' "
The demise of that deal (which would have put $300 million in Malone's pocket) left him disappointed, but undeterred, said people who knew him then. He did not fly into a rage. In fact, if Malone has ever displayed a temper, no one is willing to admit it.
"When it (the Bell Atlantic deal) didn't go down, it was the first time he had a major public setback," said Bob Johnson, who formed Black Entertainment Television in partnership with Malone.
"He didn't necessarily point fingers at anybody. He may have second-guessed whether they put all the right numbers on the table. But he said simply, 'We're moving on to something else.' "
Lee Masters, president and CEO of Liberty Digital, a subsidiary of Liberty Media, says he has never seen Malone ill-tempered.
"The guy seems extremely centered," he said, "a man very much at ease with himself."
One acquaintance who never got along with Malone because of a perceived superiority attitude, admitted that "nothing seems to faze him."
Even a highly publicized confrontation with AT&T Chairman Mike Armstrong and the rest of the board of directors is probably more media fabrication than reality, says one source close to the situation.
And if it weren't for the Liberty spinoff, Malone would probably still sit on the board, the source said.
"Many old-line AT&T directors were shocked by the articles in which John spoke publicly about what AT&T's strategy should be," the source said. "For instance, Tom Wyman (former chairman of CBS) thought it was inappropriate to be talking about AT&T strategy in the press. But there was a lot more angst between some of the hard-core directors than there was between John and Mike. They still get along fine."
Misinterpretations
Even the letter in which Malone resigned early from the AT&T board prompted misinterpretation in the media, including the Rocky Mountain News, the source said. Malone wrote, "Inasmuch as I would be departing the board on Aug. 10 in any event, and since I have been excluded from board deliberations involving the Comcast situation to date, it seems appropriate that I accelerate my departure." But he was not signaling irritation over that exclusion, the source said. Malone was "conflicted five different ways" over Comcast's $54 billion offer to buy AT&T Broadband, and he could not participate in discussions.
"John drives to Maine with his wife every summer," the source said. "Why should he come all the way back for a meeting he couldn't attend anyway?"
Detractors have also depicted Malone as cold and ruthless, a tag most recently reinforced in a lawsuit by a former business partner. Gary Klesch claims he worked with Malone to acquire six German cable systems, only to be jettisoned from the deal two weeks prior to consummation.
The reputation probably began with an episode in Vail, where TCI pulled programming and invited viewers to call the mayor to talk to him about negotiations over cable-franchise rights. But that was actually the work of a Malone underling, said a source.
"I've never been impressed by the people he's attracted to run the company," said the source. "They had sort of a take-no-prisoners mentality. They created a company with a rough reputation. So they had more than their share of municipal and regulatory problems."
Liberty Digital's Masters disagrees with the notion that Malone sometimes fills positions with the wrong people, citing Dob Bennett, president of Liberty Media, and Gary Howard, Liberty Media's chief operating officer, as people who have added value to the company. Hindery is generally credited with cleaning up a mountain of debt that made TCI attractive enough to AT&T for an acquisition.
Malone also has a reputation as a negotiator who only quits negotiating when the last document gets the last signature. Some people consider that tactic distasteful and others consider it downright unethical. Most recently, Malone changed the terms of the UnitedGlobalCom deal twice -- after the initial press release. And it still isn't done.
"John's mind is always working, and it wouldn't surprise me if, two days later, he might have something else he wants to get into the deal," said the source who criticized his recruiting abilities. "I don't think it's re-trading as much as introducing new ideas."
For the record, UnitedGlobalCom has expressed no dissatisfaction over the revised terms of its recent deal.
Customized proposals
Starz Encore Group Chairman John Sie, who has found himself on both sides of the negotiating table with Malone, says Malone does nothing underhanded to augment his negotiating skills. Malone simply finds ways to make a deal extremely attractive to the other party, Sie says.
"He would always offer the other party a customized, tailored proposal that would win the deal, without being the highest bidder," Sie said. "He has an uncanny ability to tailor a deal to the other party in a way that suits that party best."
Nearly every story written about Malone -- and almost anyone who has ever assessed his contributions to the cable industry -- refers to his superior intellect. Even nemesis Al Gore never challenged him on that issue. Malone was a Phi Beta Kappa at Yale University, where he obtained a degree in electrical engineering and economics in 1963. He received his doctorate in philosophy in operations research at Johns Hopkins in 1967.
"The guy processes more and can see the end of the tunnel better than any other businessman you've ever seen," said one Denver cable executive.
"He has an IQ that starts with a three," says Hindery.
However, he has two major blotches on a nearly perfect record, both of which occurred last year. Liberty Media invested $500 million in Englewood-based ICG Communications Inc. and $190 million in Priceline.com with Vulcan Ventures. By the end of the year, ICG had filed for bankruptcy protection and Priceline's stock had fallen 42 percent. Is Malone slipping? Not according to the people who know him, who contend that statistics were bound to catch up with him eventually.
"Every businessperson has done some bad deals," said BET's Johnson. "I can imagine they had technology as the hook. You come to John with a technology play, and he'll be a heck of a lot more interested than if you say you're going to sell hamburgers at Home Depot. And if it has some tax advantages going forward, then you're on his radar screen."
A well-read executive
Malone engaged Sie in a discussion over Esaki tunnel diodes when Sie first interviewed for a job with Malone. Then they moved to a discussion about lapidarists (someone who cuts and polishes gemstones), and Malone held his own, Sie said. Malone's briefcase is always full of books on various topics, said Dick Green, president and CEO of CableLabs in Louisville, where Malone serves on the board.
Said Hindery, "He reads technical journals that make your nose bleed."
Green remembers one overseas business flight when Green pulled out a fairly obscure book called Longitude by Dava Sobel. It tells how a "lone genius" figured out how to use clockwork to help sailors determine longitude.
"Oh, I read that," Malone said, noticing the title.
"I wasn't surprised," remembers Green.
In fact, Malone has a penchant for boats. His 72-foot, motorized yacht docked in Maine is called Liberty. He used to prefer sailboats, but he has switched to propelled boats because of the technology involved. He owns a boatyard in Maine that designs and builds boats.
He also owns several cattle ranches around the country, including Colorado. He has quietly donated thousands of acres into conservation easements. And he has donated hundreds of millions of dollars to educational institutions.
And in the category of helping mankind, Johnson notes that Malone's original $500,000 investment in BET made possible an eventual sale to Viacom for $3 billion. About a dozen African-Americans in the executive ranks at BET had received stock options that allowed them to share the wealth, Johnson said.
"John can take credit for creating more African-American millionaires than any other white guy in the country," Johnson said.
Malone is legendary for his degree of decisiveness, and Johnson still marvels at the time he first saw that characteristic personally. Johnson had met Malone through the National Cable Television Association, where Johnson served as a lobbyist. After a 1979 board meeting, Johnson asked for a brief audience with Malone, where Johnson proposed the notion of BET.
Learning that Johnson needed $500,000, Malone immediately offered to give him $180,000 for a 20 percent stake in BET, plus a $320,000 loan. Malone called his attorney into the room, and Malone wrote a check -- 35 minutes after Johnson first broached the subject.
"If he had reversed the numbers, insisting on 80 percent for the $180,000, I would have said OK to that, too," Johnson said. "I asked him later why he did that. He told me he knew I would work harder for myself than I would for him."
Decisions come quickly
If Malone experienced any frustrations in his ties with AT&T, they might have been born of AT&T's ponderous approach to business, Hindery said.
"The world he lives in rewards decisiveness," Hindery said.
"He does things very quickly," Sie said. "I don't think I ever spent more than a half-hour to get a decision out of John Malone."
Now he must decide where he wants to take Liberty Media and its portfolio of programming, communications, and cable investments. Does he partner with a major entertainment company to try to buy AT&T Broadband in a sort of circle of life? Analysts say it's unlikely, and Liberty says officially it isn't interested. (AT&T has not included Liberty in its list of prospective buyers invited to sign confidentiality agreements.)
So does Malone pour all his energy into the News Corp. purchase of Hughes Electronics and create another distribution channel (satellite) for his programming companies? That deal will probably happen, but not in such a way as to distract him from his real love -- cable.
"You'll probably get some idea (about Malone's direction) if you examine what they're doing with expansion in Europe," said Masters.
And if he wants to take over Europe, he'll probably make up his mind in the next 30 minutes, if he hasn't already.
August 4, 2001 |
