All, "A must read"
2/19/1999
Malone's garden grows
Aftermath of AT&T/TCI merger leaves Liberty with debt-free leverage and $9 billion in cash
With the AT&T-TCI merger cleared for takeoff, John Malone is poised to pilot a Liberty Media Corp. that's awash in cash and largely unburdened by debt.
For a TCI-era Malone, a debt-free bankroll was a bad thing. Historically, he's preferred to borrow, largely for the tax benefit.
Now, however, the rules have changed for a merger-liberated Malone and Liberty.
"We'll be starting life with $9 billion of cash," says Malone. "The challenge is how to deploy that $9 billion and take the leverage up in a way that enhances the growth rate and quality of the [Liberty] portfolio. We'll be opportunistic--take a sow-a-few-seeds, tend-the-garden approach.
"On leverage, it's all a target of opportunity," he says. "If the stock is trading at 60% of breakup value, I'd say leverage the shit out of it and buy stock ... . A lot of it is financial engineering--hedge positions in which you have big economics, invest in opportunities."
Liberty's market capitalization is roughly $33 billion, and immediately post-merger it will have 2.5 billion newly issued shares of stock--about $5.5 billion in cash and the ability to obtain up to $8 billion in debt. The additional $3.5 billion in cash, subject to market fluctuations, will come from the sale of Liberty's Sprint PCS stake, a condition imposed by the Justice Department.
But don't look for Liberty to go on a big-bucks spending spree, says Malone: "When equity markets are high, it's not a great time to buy something big with cash.
"In the technology world, you involve yourself in what you think are strong ideas. Some work out, some don't. The typical venture capital investment is a couple million bucks. Only when you have what you think is a home run do you start pouring capital in. Liberty is a great environment for this. Because of our financial position, there's not much we don't get to see."
Liberty will focus on maintaining or improving its 20%-25% growth rate, pumping up existing Liberty investments that the Malone-Dob Bennett-Gary Howard management team considers attractive, and looking for the next At Home, Teleport, or USA Networks.
E-commerce, interactive advertising, new programming--those are among opportunities Liberty will explore. E-commerce is particularly attractive, says Malone, because it "cuts across the Web-TV boundary better than other applications."
What's out? "The one thing I won't let these guys invest in is a major studio," says Malone. "We tried making pictures once, and they were awful. I don't mind having affiliate companies do that. But in terms of Dob being Cecil B. DeMille, don't count on it."
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