Here's an article On This past months activity on TUNE,including IATV,
and the possibilties engendered for the future of TCIMusic, to become Known as: LIBERTY DIGITAL(.com?) from RagingBull cyberstock report, which is a great overview....never underestimate John Malone of Liberty Media? You be the judge...
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Give Me Liberty Or Give Me … A Freshly Minted Internet Stock
Three weeks ago, Liberty Media (LMGA), the programming and investment arm
of cable giant TCI, announced plans to transfer most of its Internet and
interactive assets to TCI Music (TUNE), a separate company which TCI also
controls. What was the goal of the transaction? To turn TCI Music, which
has largely been a laggard in the TCI empire, into a red-hot pure-play
Internet investment company which would be re-named Liberty Digital.
Judging by the explosive surge in TCI Music's stock price since the deal
was announced, it appears that cable legend and Liberty Media Chairman John
Malone has succeeded. In less then 72 hours, Malone watched TCI Music's
market cap balloon from a paltry $681 million on April 5, the day before
the proposed transaction, to almost $4 billion three days later.
It's the kind of magic act that would make even David Copperfield jealous.
Talk about unlocking shareholder value - Malone's lightning quick slight of
hand has left a perennial underperformer like TCI Music positioned as a
cyberstock sensation almost overnight. And investors' love affair with the
newly re-born TCI Music continues. As of today's close, TCI Music sports a
market cap of roughly $4.2 billion.
So how does this deal work? Liberty Media plans to turn over its Internet
assets, including SportsLine USA (SPLN), drugstore.com, Priceline.com
(PCLN), iVillage (IVIL) and others, to TCI Music in return for 128.8
million additional TCI Music common shares. That will boost Liberty
Media's stake in TCI Music from 86% to 94%. TCI Music's current assets
include online music site SonicNet, interactive music channel THE BOX, and
DMX, which provides digital music programming.
TCI Music Chairman and Chief Executive Lee Masters estimates the newly
combined company will have assets worth roughly $1 billion. Masters values
the assets Liberty Media will contribute to TCI Music at about $650
million. TCI Music would also assume about $50 million of debt related to
the new Internet assets, but Liberty Media would agree to loan TCI Music
$50 million pursuant to a convertible note.
You're probably asking, what was TCI Music before Liberty Media announced
plans to re-shuffle its Internet assets and re-name the company as Liberty
Digital? In reality, TCI Music is simply a tracking stock - which means it
is technically still a wholly owned piece of TCI. In March, TCI completed
its $55 billion merger with AT&T (T), which means that TCI Music is now
just an asset of AT&T. Confusing isn't it?
As TCI tracking stocks, Liberty Media and TCI Music also became "tracking
stock assets" of the planned AT&T/TCI merger. However, it should be noted
that Malone especially structured the tracking stocks and AT&T/TCI deal so
that Liberty Media is able to operate almost autonomously from AT&T.
Critics argue that Malone and his investment bankers are simply conducting
"Internet alchemy" with the proposed transaction, but I call it pure
genius. After all, Malone didn't write the rules, he only plays the game.
Investors are starved for pure dot-com plays and Malone simply delivered on
a silver platter what the Street requested. Executives at traditional
media companies like Disney (DIS), Time Warner (TWX), CBS (CBS) and General
Electric's (GE) NBC, who have been mulling Internet IPO spin-offs would
love to have the opportunity to shift their Internet assets into a
pre-existing tracking stock.
Malone simply saw the opportunity and seized it. Now he is left with a
valuable currency to make some serious noise in the Internet investment
arena. Rest assured that by the end of this year, regular Net investors
will be quite familiar with the name Liberty Digital. Malone has never
been a man with small aspirations.
While I'm optimistic about the proposed Liberty Digital's future plans and
I can detect the potential for numerous operating synergies between their
growing Internet portfolio, I can't say that I pretend to understand TCI
Music's current valuation. After all, should TCI Music now be worth even
one-third the market value of a wildly successful Internet incubator and
venture firm like CMGI (CMGI) which has consistently turned out monster
homeruns like Lycos (LCOS) and GeoCities (GCTY) and has a much larger
Internet portfolio.
I don't see how that could be possible, but with current market caps of
$12.3 billion for CMGI and $4.2 billion for TCI Music, that seems to be
what investors are saying. Further, TCI Music's current stakes in its
public Internet portfolio aren't sizeable enough to wield any noticeable
influence over those firms. Regardless, I thought it was time to take a
closer look at TCI Music's current portfolio, which should soon be
transferred to Liberty Digital.
Liberty Digital's Portfolio Up Close
Below I have provided brief snap shots of TCI Music's public holdings as
well as some of their more promising private investments.
- ACTV (IATV) - 2.5 million shares and 2.5 million warrants - The company
is developing a variety of interactive television technologies. On April
13, Liberty Media announced plans to make an additional investment in ACTV
which could leave Liberty with a 25% stake.
- iVillage - 753,864 shares - This online women's network recently went
public and includes prominent investors like NBC, Kleiner Perkins and
America Online (AOL).
- SportsLine - 533,334 shares - One of the Web's largest sports news and
information sites. Added minority investors include CBS and Kleiner
Perkins.
- Priceline.com - 2.5 million shares - A self-described "buyer driven
commerce company" which recently enjoyed a wildly successful IPO.
Investors include Paul Allen's venture firm, General Atlantic Partners, and
the former CEO of Lotus.
- Total Entertainment Network (private) - 20% interest - TEN is a provider
of online family games and game communities to a variety of web sites.
Well known investors include Nokia (NOK), Goldman Sachs, Kleiner Perkins
and Ameritech (AIT) among others. Last week the company closed a new $30
million round of financing in which TCI Music took part.
- drugstore.com (private) - 1.5% interest - Newly launched online pharmacy
site backed by TCI Music as well as e-tailing giant Amazon.com (AMZN) and
venture firm Kleiner Perkins. drugstore.com's CEO is former Microsoft
(MSFT) vice president Peter Neupert.
TCI Music also maintains a number of stakes in other closely held Internet
companies, including The Lightspan Partnership (8% interest), Academic
Systems Corp. (5% interest), iBeam Broadcasting Corp. (6.6% interest),
Interactive Pictures Corp. (4% interest), and Digital Health Group(100%).
All of these Internet assets would also be included in the proposed Liberty
Media-TCI Music transaction.
On The Plus Side
TCI Music's strong relationship with Liberty Media should serve as a
valuable asset for the Internet venture firm. Liberty Media maintains
stakes in more than 100 cable channels such as BET, Discovery Channel, E!,
CNN, TNT, CourtTV and USA Networks (USAI). Liberty also maintains sizeable
stakes in Rupert Murdoch's News Corp. (NWS), QVC and Time Warner. Such
pre-existing relationships should serve as a powerful factor in attracting
significant Internet deal flow for TCI Music. In addition, Liberty Media's
ties to traditional media should prove valuable when introducing various
TCI Music companies to Liberty Media investments and vice versa.
TCI Music's direct connection with TCI, which currently maintains majority
voting control of high-speed Internet provider At Home (ATHM) should
enhance the venture firm's bargaining position with private and public
Internet companies. Liberty Media is also a large investor in leading set
top box maker General Instrument (GIC). Together, Liberty Media's At Home
and General Instrument stakes provide a compelling "broadband entry
strategy" for private Internet companies looking to jump on the high
bandwidth bandwagon. Although, I'm sure in Malone's perfect world that
means these private Internet companies must first give up a sizeable equity
stake for the magical doors to be opened.
In addition, TCI Music has already announced they plan to develop 12
interactive cable channels. An agreement reached between Liberty Media and
AT&T as part of the AT&T/TCI merger gives Liberty Media valuable
interactive video rights to AT&T cable systems. And guess who Liberty
Media is turning the rights over to? Yep - Liberty Digital, as part of the
proposed TCI Music-Liberty Media deal.
So far, interactive television has been tried often and has failed often.
Will this soon change? Will the proposed Liberty Digital find a way to
ride interactive television's coattails? Possibly.
I'm not a true believer yet in interactive television or in Malone's recent
moves with Liberty Media and TCI Music, but one thing I do know is to never
underestimate John Malone. After all, he was able to peddle off TCI to
AT&T for $55 billion. What can he do for an encore with TCI Music? I'm
still not sure, but it's definitely going to be fun to watch. Interactive
television and popcorn anyone? |
