Here's a great article that was sent to me via e-mail on Liberty Media, draw your own conclusions.
The New Liberty Media
MALONE EYES TRANSFORMATION OF LIBERTY
July 27, 1998
Electronic Media :
AT&T's stock price is struggling and pressure mounts to restructure
terms of its proposed merger with TCI. So why is John Malone
smiling?
It's because the TCI chief is set to become the controlling
chairman of an expanded Liberty Media Group -- laden with
TCI Ventures' lucrative investments and a $13 billion cash
horde -- by year's end, regardless of the merger outcome. All
Liberty needs is approval of its shareholders.
Liberty will be a ''pure play'' in John Malone himself,
observes Robert ''Dob'' Bennett, who will continue as
president and CEO of Liberty Media Group.
Mr. Malone, 51, will have freedom from cable system
operations to be a high- flying investor who identifies and fills
industry gaps while usually generating stellar shareholder
returns.
''We have a lot of firepower here,'' Mr. Malone beams. ''We
love our Liberty.''
Over the next six months, Mr. Malone will try to transform
Liberty into an even bigger powerhouse that some say could
become the Goliath of the media world.
Liberty will grab struggling investment opportunities or launch
start-ups and grow them -- eventually taking them public and
spinning them off in tax-free deals.
Liberty expects to rely on equity partner funds and tax
advantaged arrangements to leverage the financial and strategic
value of its assets.
Mr. Malone wants Liberty to function as an arbitrage firm on
one hand and the gatekeeper of key digital programming and
interactive services on the other. He hopes to acquire whole or
partial ownership in new cable- or Internet-related entities and
expand its existing program holdings.
Mr. Malone will create a Liberty Capital subsidiary that, like
General Electric Capital, will finance major capital needs of
other communications players that could include advanced
digital set-top boxes, satellites and transmission towers.
''This is an opportunity to build new start-up assets within
the AT&T family and perhaps become the GE Capital of the
AT&T consolidated group,'' Mr. Malone recently told
investors.
''The secret of why this is terrific is all in the internal financial
structuring that's going on,'' he said.
A winning formula
Mr. Malone has already used these tactics to make Liberty a
$14 billion cable programming giant in seven years and to
nurture TCI Ventures into an $8 billion technology services
counterpart in the year since it was formed.
His new secret weapon in creating a bigger, fiscally invincible
Liberty -- the name comes from Mr. Malone's 80-foot yacht --
is massive liquidity provided by AT&T.
The formation of an expanded Liberty later this year is not
dependent on the AT &T and TCI merger that could be
completed by early 1999. But, the new Liberty's ''no lose''
status is considerably enhanced by a tax shelter arrangement
with AT&T if the $48 billion union is consummated.
While operating as an independent entity, Liberty would
become an AT&T tracking stock whose operations are
consolidated with AT&T's for tax purposes.
AT&T has agreed to provide cash reimbursement for all the
losses Liberty sustains from investments or start-up
businesses. Those losses become tax write- offs for AT&T,
which pays about $15 billion in annual taxes.
''We can use all of the tax losses we can generate, and we're
not at all sensitive to profits and losses or a balance sheet,''
Liberty's Mr. Bennett said.
Add to that $5.5 billion in tax-free cash that Liberty gets for
selling its AT &T stock and its holdings in Teleport
Communications and @Home to AT& T's newly created
consumer services company, which will encompass TCI cable.
Liberty also receives $1.7 billion in TCI tax credits to offset
acquisitions and other capital gains.
Liberty can assume another $7 billion in debt, or about 25
percent of its $28 billion market capitalization, and liquidate
investments such as its 9 percent nonvoting Time Warner
stake valued at more than $5 billion.
If it exercises all its options, Liberty could have more than $20
billion in cash resources to wheel and deal with its first year.
Enter Sandman
Mr. Malone's tax-sheltered sandbox is secure even if the
merger collapses.
Although Liberty would not enjoy a tax-sheltered status with
AT&T, Liberty would have a broader base of assets off which
to leverage since it would not sell any of its interests to
AT&T.
For instance, Liberty would retain a controlling interest in
@Home, a high- speed Internet-access venture whose valued
has climbed from its initial public offering of $10 a share a
year ago to more than $40 a share, or nearly $6 billion in
market capitalization despite $40 million in annual losses.
In case the AT&T and TCI merger is derailed, the new Liberty
also would retain TCI Ventures' Headend in the Sky, called
HITS, and National Digital Services Center, which are now set
to be transferred to the new AT&T Consumer Services Co.
Positioned to make TCI the clearinghouse for cable and
broadcast digital signals, analysts say HITS and the digital
center are undervalued gold mines of a new media age.
In any event, Mr. Malone says he will keep Liberty a
low-cost enterprise with a modest head count that today
equates to an impressive $1 billion-plus in market
capitalization for each of its 14 full-time workers.
Liberty also will aggressively buy back its own stock, which
has appreciated more than 30 percent since the merger
announcement to near its 12-month $50 share target price.
Hitting a homer
If AT&T completes the TCI acquisition, AT&T would have
to pay a premium if it decided that it wanted control of
Liberty.
''My guess is they [AT&T] will either come to the conclusion
that they need to own Liberty long term, in which case they
would probably seek to pay a premium, or they will spin it
off down the road,'' Mr. Malone told investors.
An independent Liberty would be free to invest in broadcast
properties and would be able to vote its 9 percent Time
Warner stake.
No matter how you cut it, Mr. Malone said, ''Liberty is a
home run.''
Gary Howard will be executive vice president and chief
operating officer of Liberty, and president of Liberty Capital.
As the executive who previously has managed TCI Ventures'
eclectic mass of investments, he said, ''Our biggest challenge
will be being patient with the cash and only pursuing
opportunities that we believe are undervalued. Right now, the
market for Internet properties is pretty hot.''
Last year, TCI Ventures went public at $16 a share with its
cable and high- tech odds and ends, trading at a 20 percent
discount to its market value.
''TCI Ventures was significantly undervalued due to its
complexity and newness,'' said Tom Wolzien, analyst for
Sanford C. Bernstein & Co. ''Now, some of its assets are
being monetized and the rest will become part of an industry
gold mine.''
A top priority will be developing interactive advertising and
electronic retailing across Liberty's existing program base,
TCI's owned-and-affiliated cable systems, TCI's @Home's
fledgling Internet base and even United Video's electronic
program guide. Their first efforts should surface in six months.
A key to the new Liberty will be ''the relationship between
content and the interactivity made possible by the advanced
digital set-top boxes, and the relationship between @Home
and the Internet,'' Mr. Howard said. ''We think that has
tremendous advertising potential and consumer appeal.
''But, our bet is riding with television and those things that
work off of TV sets,'' Mr. Howard said. ''The end game of all
this is to make it more consumer friendly rather than making it
more complex, recognizing that the TV is primarily an
entertainment modem.''
Finding more niches
The cost of launching new niche program offerings from
existing franchise channels is minimal. Potential advertising,
sponsorship and merchandising tie- ins could reap big returns.
For instance, TCI's partnership with Kraft Foods eventually
may result in Kraft's sponsorship of a supermarket channel
with a direct link to the company's Web site and
point-and-click electronic coupons made possibly by cable's
advanced digital technology.
TCI Music could be electronically linked to ticket ordering and
music merchandising, while tapping its customer data bank for
niche marketing.
TCI's recently announced personal finance partnership with
Intuit, Bank of America and @Home will render an
Internet-based, revenue-generating transactions and marketing
bonanza.
The funds generated from such partnerships will be used by
AT&T Consumer Services Co. to offset the cost of rolling out
the advanced digital set-top boxes or by Liberty to fund more
enterprise investing.
TCI and Liberty will soon announce other interactive alliances
that could involve Amazon.com, Coca-Cola, Nike and USA
Networks' Home Shopping Network, QVC, and Ticketmaster
(in which Liberty holds a 21 percent stake).
''If I don't have some ink on paper in six to nine months, I will
be disappointed,'' Mr. Howard said.
Programming is king
Liberty is already developing Internet businesses and
extensions of its Discovery Channel, music and other branded
channels, which it considers as new media portals.
''We want to aggregate eyeballs on a video channel and then
drive them to various interactive transactions and services that
the advanced set-top boxes will allow,'' Mr. Bennett said.
''We won't necessarily pour boatloads of cash into content
creation. We will spend reasonably,'' Mr. Bennett said. ''The
cash we will have gives us the ability to look at bigger things,
but that doesn't necessarily mean we will.''
John Tinker, analyst for NationsBanc Montgomery Securities,
said Mr. Malone's move to run Liberty ''reaffirms the view
that content is king.''
He said demand for cable programming should increase as
cable operators expand channel capacity and roll out digital
services. That bodes well for Liberty.
The company has negotiated a ''favored vendor status'' as a
television and Internet product supplier and developer with
AT&T and TCI as distributors. That includes some ''very
specific and fairly attractive commitments,'' Mr. Malone said.
Liberty's United Video Satellite Service -- set to acquire TV
Guide for $2 billion and having recently made a hostile bid for
Gemstar -- has been reshaping itself into a primary provider of
electronic program guides that will be a powerful highway for
interactive advertising and promotions, he said.
Even TCI International, which Liberty will take private when
it becomes part of its asset collection, is being reconfigured as
an international content platform with an eye toward spinning
off some of its telephone-related overseas assets to AT&T.
But, the ultimate example of creating value out of thin air may
be the sale of TCI to AT&T as a solution to the cable
operator's frustrating attempts to gain a toehold in
telephony-related services.
AT&T, hungry for a more powerful pipeline into U.S. TV
homes, will underwrite TCI's costly cable upgrades, new
services rollouts and Liberty's expansion.
''I don't think we need to buy the dairy in order to get a little
milk,'' Mr. Malone explained in a recent interview.
''It's so simple,'' observed Mr. Bennett, ''most people don't
believe it.''
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