Malone Expands Liberty's Empire
By Joshua Cho
After months of keeping a low profile, John Malone and Liberty Media Corp. last week burst into the spotlight, showcasing a flurry of deals designed to position the company as a new media/entertainment powerhouse.
While Liberty may be a subsidiary of AT&T, it is clear that Malone is at the helm. Analysts and industry watchers believe the deals signal Malone's drive to convert Liberty's operating assets into investment stakes in publicly traded media megaliths.
Liberty increased its stake in three major industry players last week and completely divested its sports assets. Among the deals detailed last week:
Liberty will sell its assets in the 50-50 owned Fox/Liberty joint venture to Rupert Murdoch's News Corp. for $1.43 billion in News Corp. stock. As a result of the deal it will become the Australian-based company's second largest investor, behind Murdoch.
On April 5 Liberty announced it would become the largest shareholder in General Instrument, buying an additional $280 million in GI shares to increase its stake to 18%.
On April 6 Liberty said it would shift some of its Internet holdings over to its TCI Music unit.
Liberty made Wall Street take notice with the plan to shift some key online holdings to the relatively undistinguished TCI Music Inc., which distributes Digital Music Express, the Box Worldwide, Inc. and SonicNet, an Internet music site.
Among the dozen or so online investments being shepherded to TCI Music: SportsLine USA, IBeam, IVillage, Priceline.com and drugstore.com. TCI Music will be renamed Liberty Digital.
The deal increases Liberty's stake in TCI Music to 94% from 86%. Analysts said that the ownership gives Malone the ability to use TCI Music as an investment vehicle in the super-hot Internet/interactive television sector, using TCI Music's stock as currency for acquisitions.
TCI Music's class A common shares shot up 253% on word of the announcement, closing at $29.56 April 6. Liberty Media's shares closed up 5.59% to $59; News Corp.'s ADRs closed at $34, up 0.55%. Analysts said the deal added some $3.6 billion in value to TCI Music shares and $2.6 billion to the value of Liberty Media shares on April 6.
Currently former E! chief Lee Masters oversees development of Liberty's interactive services. Analysts say these interactive services - most of which are focused on electronic retailing - are guaranteed distribution on AT&T cable systems as part of the company's deal to acquire TCI.
According to a source close to the deal, a TCI Music board meeting has been scheduled for April 20 to vote on the proposal. Morgan Stanley has been retained to do a fairness opinion on the deal, which at this point has a good chance of being approved.
Malone's 5% stake in Liberty is currently worth more than $1.5 billion. Although the company is a subsidiary of AT&T, Malone controls nearly 50% of the company's voting shares. Liberty coffers currently hold a $5.5-billion cash stockpile and it enjoys the formidable borrowing power that comes with being an AT&T unit. Consequently, analysts said they expected more announcements to come from Liberty as it solidifies its position going forward.
"We're going to see a fair amount of activity early on to establish the direction that Liberty is going in," said Stephens Inc. analyst John Corcoran. "They're sitting on a lot of cash," he said, referring to Malone's $5.5 billion war chest.
Liberty also is growing its international profile, thanks to the Murdoch-Malone partnership. As part of its Fox-Liberty deal Liberty will acquire half of MCI Worldcom Inc.'s shares in News Corp. for a total of $695 million, or $24.75 a share. This increases Liberty's stake in News Corp. to about 8%, making it the second largest shareholder, after Murdoch. The remainder of the MCI shares will be sold to Prince Al Waleed Bin Talal of Saudi Arabia and to News Corp.
Also, sources last week said Malone has been invited onto the News Corp. board by Murdoch, a move that positions Malone to develop an international foothold in Europe and Asia, as well.
According to Robert "Dob" Bennett, Liberty's CEO, who spoke at a conference call to announce the Fox-Liberty sports deal, "In our opinion, these assets are more valuable in News Corp.'s hands than with us. But we get to continue to enjoy upside in them by owning the stock … acquiring a security that has substantial upside built into it."
David DeVoe, News Corp.'s CFO, said: "With this acquisition, News and Fox further solidify our leadership positions in cable and strengthen our position in sports."
The deals announced last week, including the $280 million Liberty paid for 10 million shares of cable set-top box maker General Instrument Corp., used up just under $1 billion of that capital.
Future announcements, however, will more than likely not include any sports related assets.
"We've exited from direct participation in the sports business," Bennett said.
Liberty's assets, valued at nearly $60 billion, also include investments in Time Warner Inc., USA Networks Inc., Discovery Communications Inc. and TV Guide Inc.
(April 12, 1999)
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