Feb 2, 2004  •  Post A Comment

In a candid interview, News Corp. Chairman Rupert Murdoch told me he does not feel threatened by Liberty Media Corp. Chairman John Malone’s emergence as the second-most-powerful voting shareholder in his company, and even hinted that the two might one day more closely align their interests.
Mr. Malone’s surprise conversion more than a week ago of what was Liberty’s passive 19 percent nonvoting stake in News Corp. into a 9.15 percent voting stake was greeted on Wall Street and throughout the media world with a collective gasp, since it appeared to be a sneak attack.
“Not at all. He [Mr. Malone] is a good friend and supportive, and we’re quite relaxed about it,” Mr. Murdoch told me.
“I knew it was in the offing, but I didn’t know he was actually buying it until he called me that Tuesday morning,” Mr. Murdoch said about the Jan. 20 stock transaction.
In what appeared to be a smart, Liberty swapped 21.2 million nonvoting shares and paid $693 million in cash for 48 million of Australia-based News Corp.’s voting shares (or ADS, American Depository Securities). Although all the details have not been disclosed, it appears Liberty paid at a slight discount to where News Corp. shares had been trading, and entered into a hedge for another 38 million voting shares. Liberty acknowledged it was quietly buying News Corp. shares on the open market in the weeks leading up to the conversion. “I think they [Liberty] just did very well converting our shares,” Mr. Murdoch said.
Mr. Murdoch said he is secure in the notion that no takeover of News Corp. is afoot. A hostile move would not be possible given the Murdoch family’s collective 30 percent voting stake and Australian regulations. Overall, the Murdochs’ economic interest is 14 percent to Liberty’s continuing 17 percent economic interest.
For now, Liberty and Mr. Malone are not expected to buy any additional News Corp. stock or swap any more of Liberty’s remaining 843 million nonvoting shares, since it could possibly violate complicated Australian foreign ownership limits. “That won’t happen,” Mr. Murdoch said. “I think he’s at his limit because he is sort of lumped with ours.”
There are no immediate plans to offer Mr. Malone a seat on the News Corp. board, he said, although sources say that remains a possibility.
But Mr. Murdoch does not discount the notion that News Corp. and Liberty could collaborate on other fronts, and do more to combine their resources and interests in the future.
“Liberty has a varied portfolio of investments, and it could be that we could do something with the joint development of cable channels. But we don’t have any specific plans like that,” Mr. Murdoch said. “We’re just good friends and we talk occasionally and discuss strategies.”
If Mr. Malone’s intentions are friendly, Liberty’s and Mr. Murdoch’s combined voting shares would guarantee them absolute control of News Corp. in a synergistic fashion.
In fact, high-level industry executives who know both men well say it is more likely that News Corp. might one day absorb some or all of Liberty’s diverse holdings, which include Discovery Communications, QVC and Starz!-Encore and cable systems in continental Europe and in Japan.
“We haven’t had any discussions of that sort or covering that, really. Not in any detail,” Mr. Murdoch said. “That could be, at this stage, a very big bite for us.”
Could Liberty’s conversion move be perceived as a first step toward News Corp. eventually absorbing Liberty, since that now would involve buying back his company’s own shares?
Mr. Murdoch said, “I have nothing planned in that way but, you know, looking down the line five or 10 years … it’s not an impossibility. But it’s not on our agenda at the moment.”
Mr. Malone, who could not be reached for comment, has said by way of Liberty’s required securities filings that the company does not seek control or change of ownership or direction of News Corp. Besides, there are reasons why it has been a while since the media world has seen a hostile takeover attempt. There are too few players having to both compete and cooperate in the same space, so the risks have become as heavy as the inflated price tags.
Still, some on Wall Street think differently, including Fulcrum Partners analyst Richard Greenfield. “This could be the first step in taking voting control of News Corp,” Mr. Greenfield said. “Why couldn’t Liberty perform the same sequence of transactions a few more times and move its voting power above 30 percent?”
The same takeover speculation raged when Mr. Malone first acquired the News Corp. stake in 2000 as a result of swapping Liberty’s interest in Gemstar-TV Guide.
It has been Mr. Malone’s style to position himself as an influential force rather than as a takeover king.
But in a consolidating world of powerful media players, the fact that two industry geniuses like Mr. Murdoch and Mr. Malone are even parked in the same stable is probably a good thing. Their assets and interests are no doubt more in common than in conflict.
These days, Mr. Malone clearly is placing his bets on content, having also recently acquired 100 percent of QVC in addition to taking a more formidable position at News Corp. and already owning the likes of Discovery and Starz.
Even without a board seat, the voting stake gives Mr. Malone and Liberty even more of a voice in News Corp. and Fox business matters, including the sensitive and critical issue of succession. Mr. Malone might want to challenge Mr. Murdoch’s stated plan to have his sons, Lachlan and James, assume command in his absence. Mr. Murdoch told me he has no plans to firm up or alter his succession-related thinking or plans in light of recent developments.
For his part, Mr. Malone, only 10 years younger than Mr. Murdoch, has proved himself rational and sound about such internal matters. However, Bernstein Research analyst Tom Wolzien makes the point that Mr. Malone’s controlling ownership of Liberty represents its own “key man risk.”
For the most part, he has skillfully leveraged up the financial and strategic returns for Liberty shareholders with stakes in Vivendi Universal, InterActiveCorp, Time Warner and AT&T Broadband, now part of Comcast Corp.
Or it could be Liberty and Mr. Malone simply wanting to be where the action is. With the largest TV station group in the country, a handful of the most popular cable channels, a TV syndication division and the leading domestic satellite provider among its U.S. holdings, little will happen in the media here that does not pass through or pivot off of the News-Fox empire. Globally, it’s an even more significant force.
While the end game for News Corp. and Liberty is unclear, the prospects for them as close allies or friendly adversaries stands to have a significant impact not only on their companies, but also on the entire industry.
They do not need each other to be heard. But if they choose to speak in unison, there isn’t anyone who won’t listen.