Liberty Reviving Interest in Deals

Mar 22, 2004  •  Post A Comment

Liberty Media, once a major deal-maker in the media industry, has awakened from its slumber and is gearing up to make some high-profile moves.
That became clear last week with the announcement that Liberty will spin off a separately traded company for its international components, coupled with comments made by Liberty Chairman and CEO John Malone during the company’s full-year 2003 earnings conference call.
“Liberty is a collection of assets that have been converted into valuable equity positions in other people’s companies with no control,” Mr. Malone said. “We want to allow the market to focus on noninternational assets and free the international company to be more aggressive in how it uses its balance sheet, since most analysts feel Liberty is trading at a substantial discount of the sum of its parts. … If we deliver a core of meaningful assets, we have to do it in such a way that shareholders benefit directly.”
Those comments have fueled speculation that Liberty may be pondering the eventual sale of its struggling Starz Encore Group, some sort of purchase or asset swap with News Corp. (in which Liberty owns a 9 percent stake) or a move to buy control of Discovery Communications, in which Liberty now holds a 50 percent stake. Also up for consideration are sales of Liberty’s stakes in cable networks such as E! Entertainment Television and Court TV.
That’s just in the United States. Mr. Malone also made it clear that as part of his international growth plans he’d like to assemble a collection of cable systems that would in effect create what he termed “another TCI,” recalling the cable company Tele-Communications Inc. that Mr. Malone sold in 1999 to AT&T for $54 billion. Mr. Malone said he sees opportunities to purchase more overseas cable systems coming.
All this talk represents a bit of an about-face at the Englewood, Colo.-based company, which since July has had a low profile as other media companies took Liberty’s place as a mover and shaker in the entertainment realm.
Most notable is General Electric’s NBC, which is awaiting approval of its $14 billion merger with Vivendi Universal Entertainment (an asset Liberty was once a contender to buy), or more recently Comcast, the cable titan that currently has a $54 billion offer on the table to merge with media giant The Walt Disney Co. Both NBC’s and Comcast’s plays have pushed Liberty and its chairman Mr. Malone to the sidelines of a field that Liberty, as an investment vehicle, and Mr. Malone, as a consummate deal-maker, once dominated.
To be sure, what Liberty will do next is largely out of necessity. Investors have been pressuring the Englewood, Colo.-based company to transform itself into an operator of assets from a minority investor in them.
Plus, there are a number of ownership arrangements that in the coming years will need to be restructured and could result in Liberty either acquiring larger stakes or selling its interests altogether.
The company’s stock reflects the investor dismay: Since last March Liberty’s stock price has increased a little more than 20 percent, while the Standard & Poor’s 500 index has advanced well over 30 percent.
To quell some of the investor concern and to help stoke the company’s stock price, Liberty has spent the past year transforming itself into an operating company, paying $7.9 billion to Comcast for its stake in shopping channel QVC and completing a transaction late last year that gave it a 92 percent stake in operator UnitedGlobalCom, a cable company with 9 million subscribers in Latin America, Europe and Asia.
Now the company is taking UGC and combining it with its 45 percent controlling stake in Japanese cable operator Jupiter Communications to create the international spinoff Liberty Media International. Liberty’s plans call for a tax-free spinoff in which Liberty shareholders interested in a pure-play international cable can exchange Liberty shares for stock in LMI.
Analysts are speculating Mr. Malone’s musings largely are rooted in the possibility that Liberty is beginning to lay the groundwork for the eventual sale of two divisions that will remain once the international spinoff is completed this summer, networks and interactive. Networks will house Liberty’s stakes in cable networks and media companies, while interactive will oversee QVC and other assets that focus on interactive entertainment and commerce.
“Once separated properly, the individual [Liberty] pieces theoretically become more interesting to specific acquirers,” said Richard Greenfield, an analyst at Fulcrum Global Partners.
For example, Mr. Greenfield suggested the interactive assets could be sold to Barry Diller’s InterActiveCorp, while News Corp. could acquire the networks’ assets.
Among the options Mr. Malone is considering:
* Selling its minority stakes in E! Entertainment and its 50 percent stake in Court TV. Another channel that could be in play is GSN, whose ownership is evenly split between Liberty and Sony.
* Purchasing Cox Communications’ or Advance/Newhouse Communications’ stake in Discovery. Liberty owns nearly 50 percent of Discovery, with Cox and Advance/ Newhouse each holding nearly 25 percent.
* Using Liberty’s voting stake in News Corp. to either buy assets from News Corp. or vice versa.