Has John Malone pulled a fast one?
Through a series of complex maneuvers, Liberty Media-of which Malone is CEO-recently took control of three interactive TV companies for the price of one. The moves were so blinding that one shareholder has charged Liberty Media with running a “bait and switch” operation.
How did Malone do it? And will he get away with it?
Last May Liberty Media announced it would buy full ownership or a controlling interest in Wink, OpenTV and ACTV, three interactive TV software companies. Interactive TV officials applauded Malone for investing in the struggling industry. And for ACTV shareholders such as Fred Barthel it seemed like a dream come true. ACTV shareholders would get $2 per share in cash or stock in Liberty or a Liberty subsidiary; shares of ACTV had fallen well under $2.
ACTV’s software provides interactive features for digital cable boxes, including the changing of camera angles during sporting events. But last month some ACTV shareholders would have liked to use it to change their view of Liberty Media.
Bait and switch?
Liberty announced Sept. 26 that it was withdrawing its offer for ACTV. Instead, OpenTV, in which Liberty by then owned an 85 percent voting interest, said it would buy ACTV for 0.733 of a share of OpenTV’s stock. With OpenTV’s stock at approximately $1 a share, ACTV shareholders would receive around 75 cents per share, not the $2 originally promised by Liberty Media. (In July, Liberty revised the ACTV offer to $1.65 a share.)
“It was a classic bait-and-switch,” Barthel, who owns 50,000 ACTV shares, told the financial Web site, TheDeal.com.
But that’s not all. OpenTV also announced it would purchase Wink from Liberty for $101 million, virtually the same price that Liberty paid earlier in the year.
If stockholders approve the deal, Liberty will have control of all three companies (OpenTV, Wink and ACTV) for the price of one (OpenTV). And the deal appears to be legal, because Liberty said last May that ACTV shareholders might receive stock in a “Liberty subsidiary.” In September, OpenTV became a “Liberty subsidiary”; Liberty finalized its purchase of the controlling interest in OpenTV Aug. 27.
But was it a bait-and-switch operation? Did Liberty Media know all along it would order OpenTV to buy ACTV and Wink? A top ACTV official said Liberty was undecided when it announced the buyout offer earlier in the year.
“I don’t think they had made up their mind what the entity buying us was going to be,” ACTV Chief Financial Officer Chris Klein told Reuters in September.
Malone has a reputation for playing his cards close to the vest. Liberty officials have said only that they concluded in September that it made sense to have an ITV company (OpenTV) directly own the two other ITV businesses.
But Liberty led ACTV shareholders to believe it would buy the company. That impression was reinforced when Liberty amended its offer to $1.65 a share in July. ACTV shareholders had to conclude that Liberty was serious about completing the agreement. Why else would the company revise its offer?
But if Liberty was even considering that it would eventually order OpenTV to buy ACTV, that should have been disclosed. Investors deserved to know all the facts.
One could argue that ACTV would not have survived if Liberty had not stepped in. So even under these circumstances, ACTV shareholders will likely approve the OpenTV offer. Robert Cohen, senior VP for Sterling Financial Investment Group, whose clients own 21 percent of ACTV, said ACTV has few options.
“What’s the alternative? Go out of business? There’s no way that ACTV can continue without Liberty and OpenTV,” Cohen said.
Phillip Swann is president and publisher of TVPredictions.com. He can be reached at swann@TVPredictions.com.
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Oct 28, 2002 • Post A Comment
Has John Malone pulled a fast one?