More interesting reading about John and Ruport
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Date Posted: 4/9/1999
Getting out of the sports biz
Liberty Media surprises observers by divesting its half of Fox Liberty Networks
John Malone doesn't really need sports any more and is looking for investments with a better financial kick. That's the rationale behind the Liberty Media Corp. chairman's decision to sell his half of the Fox Liberty Networks to 50-50 partner News Corp. for $1.4 billion worth of News Corp. stock.
Liberty's first major deal since Malone parted with Tele-Communications Inc. in February gives the first glimmer of how Liberty's massive portfolio might change now that its ties with TCI's systems have been diluted, if not necessarily severed.
Malone sold TCI's systems to AT&T Corp. for $50 billion. He personally continues to hold a $3.5 billion stake in the long-distance carrier and Liberty is still technically a subsidiary of AT&T, with some close operating ties to the cable systems. But as a "tracking stock" with a completely different shareholder base from AT&T's, Liberty interests have diverged from TCI, industry and Wall Street executives said. "Liberty and TCI have always been managed for the mutual interests of both companies," said one Malone associate. "That's changed."
Bear, Stearns & Co. media analyst Ray Katz agreed. "TCI is not what TCI was; it's a division of AT&T," Katz said. "Liberty is essentially a separate stock. They are more financial investors than strategic investors, and they see a better return in trading sports for News Corp. stock."
Liberty President Dobb Bennett focused only on the second half of the equation: that operating problems at News Corp. over the past year have left the company undervalued. By exchanging the sports networks for News Corp. shares and buying even more stock, "We're acquiring a security that we think has substantial upside built into it."
The deal will put the extensive network of regional sports channels firmly in the hands of sports-ambitious News Corp. Chairman Rupert Murdoch. His Fox Entertainment Group can now exploit the sports networks in new ways, such as cross-promoting and programming the local nets with his Fox Broadcasting operation.
Fox President Chase Carey said Fox can also use subscribers' and operators' high demand for local sports to leverage greater carriage for other non-sports networks like Fox News Channel, Fox Movies, or channels launched later.
"Sports is important as a locomotive to drive our entire business forward," said Carey. "The power of live sports, particularly local sports, is just going to get stronger." Carey said that he doesn't expect any further major sports-related acquisitions and is not seeking to restructure its sports network and team partnership with Cablevision Systems Corp.'s Rainbow unit.
The deal calls for Liberty to shed its half of Fox Liberty Sports in exchange for 51.8 million News Corp. shares. In a second transaction, Liberty will pay $700 million for 28.1 million shares owned by MCI Worldcom Inc., which had invested in News Corp. in 1996 in anticipation of launching a now-derailed DBS venture. MCI's remaining 28.1 million News Corp. shares will be sold to Saudi Prince Al Waleed Bin Talal and News Corp. itself. That will leave Liberty the News Corp.'s second-largest shareholder, with 8% of the company's stock.
The deal was not terribly shocking, since Murdoch's hunger for sports and professional teams has been clear and rumors of some sort of deal had been percolating for months. What surprised industry and Wall Street executives is that Malone's first post-TCI move would be a divestiture, rather than a substantial acquisition.
Armed with cash from selling some Liberty assets to AT&T plus a huge slab of stock in AT&T and Sprint PCS from other operations, Malone has about $9 billion worth of liquid assets and the capacity to readily borrow several billion more, plenty to finance any number of major acquisitions.
The president of another MSO contrasted Malone to USA Network Inc. Chairman Barry Diller, who is rushing to acquire all sorts of media and Internet properties, such as Lycos and October Films, which don't necessarily fit into his existing operations.
"John doesn't need to build an empire. He already has one," the executive said. "What he's doing is portfolio management, trading assets for something that will get a superior return."
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