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Liberty execs lambasted by investors for lost focus

May 21, 2001  •  Post A Comment

John Malone’s Liberty Media Group-which is expected to close its deal this week for an expanded ownership stake in UnitedGlobalCom’s sprawling overseas cable footprint-took it on the chin last week from a few shareholders.
A growing number of institutional shareholders are saying, both on and off the record, that Liberty should go back to the business it knows best and increase its investments in television to bolster its sagging stock price and returns on investment.
Uri Landesman, chief investment officer of AFA Management Partners-which owns several million Liberty shares-was among those institutional investors who went public last week.
He criticized Liberty Chairman John Malone and Liberty Chief Executive Robert Bennett for turning from their traditional focus on cable program networks to invest in emerging Internet and phone companies.
For instance, Liberty invested in ICG Communications, which filed for bankruptcy protection, and in Priceline.com, which has fallen on hard times, not unlike other dot-com entities.
Mr. Malone and Mr. Bennett declined comment on the criticism.
Last week, Liberty reported a first-quarter loss of $99 million, compared with net income of $977 million a year earlier. Although Liberty shares have more than doubled in price since becoming a tracking stock of AT&T Corp. (following Mr. Malone’s sale of his TCI Communications cable concern to AT&T), shareholders are becoming uneasy about Liberty’s mounting losses.
One of the few bright spots has been Liberty’s relatively new investments in foreign cable companies, such as UnitedGlobalCom a supplier of video, voice and data services, which last week announced an agreement in principle on the revised terms of its pending deal with Liberty.
Liberty is set to acquire a controlling stake in UGC, which, in turn, holds a 53 percent stake in publicly traded broadband operator United Pan-Europe Communications. The terms of the pact were expected to be finalized within 10 days, Mr. Bennett told investors and members of the press on an earnings conference call May 16.
UPC shares rose 11 percent on the news, while Liberty’s tracking stock rose 80 cents to close at nearly $17 a share.
Mr. Bennett also said Liberty is expected to complete its full spinoff from AT&T by July, several weeks later than originally expected. He said the tax-free transaction is on track.
Liberty will receive between $500 million and $800 million from AT&T as part of the separation and will likely use the money to increase its stakes in existing investments or make new investments or acquisitions. Liberty also has about $2 billion in cash reserves.
There has been speculation that Leo Hindery, formerly the chief executive of TCI and of Global Crossing, could return to the fold to work with Mr. Malone and Mr. Bennett on Liberty’s international expansion once it is autonomous.
Liberty could seek to combine its stakes in United Pan-European Communications NV, Europe’s second-largest cable operator, and its U.K. rival, Telewest Communications Plc., which Liberty recently decided to hold on to rather than sell, as originally announced.
“As an independent company, Liberty has more than enough financial capacity to turn UnitedGlobalCom into a powerful distribution platform,” said Morgan Stanley Dean Witter analyst Richard Bilotti.
Liberty has a net debt of $4.2 billion, which is less than 10 percent of its market value, he said. It continues to monetize its passive investments-such as in recently sold BET Holdings-while avoiding taxes.
Liberty also is a candidate to make any number of U.S.-based acquisitions, including acquiring AT&T’s 25.5 percent stake in Time Warner Entertainment and its 23 percent stake in Cablevision Systems, and to play a bigger strategic role in Barry Diller’s USA Networks.
Liberty reported strong quarterly growth among its core businesses that in many cases exceeded analyst estimates. Despite a difficult environment, even its advertising-dependent cable services showed revenue and earnings growth.
Days earlier, UGC reported lower-than-expected quarterly revenues of $394 million, although overall losses of $71 million in earnings before interest, taxes, depreciation and amortization were in line with analyst expectations.