Malone Strategy Underwhelms

Nov 14, 2005  •  Post A Comment

If John Malone hoped that this time he might be able to win over hard-to-please Wall Street, he’s likely to be disappointed.

Ever on a quest to jump-start the stock price of Liberty Media, the company he controls, Mr. Malone last week unveiled another strategy designed to further simplify a company best known for its hodge-podge collection of media assets. He said he will issue a new stock early next year comprising his interactive investments, including home-shopping channel QVC and investments in IAC/InterActiveCorp and Expedia, in a bid to get the market to realize their full value. The remaining assets would remain under the old Liberty umbrella, which is likely to be renamed Liberty Capital.

However, initial reaction from several Wall Street analysts was muted at best.

“While Liberty is technically further unwinding itself by the creation of an interactive group tracking stock, we believe a tracking stock is a poor method of financial engineering, and one that has not excited media investors over the past decade,” Fulcrum Global Partners analyst Richard Greenfield wrote in a research note.

Sorting Out Fate

Credit Suisse First Boston analyst William Drewry added that while the creation of a tracking stock might make the interactive assets more attractive, the remaining assets in Liberty, namely Starz Encore Group and the 18 percent voting stake in Rupert Murdoch’s News Corp., “will look considerably less attractive, merely concentrating [Liberty’s] existing problems.”

Liberty and News Corp. for months have been holding talks on how Liberty can unwind its voting interest in Mr. Murdoch’s company, while questions have persisted about Liberty’s long-term strategy for Starz. Some analysts have suggested Liberty wants to sell Starz to News Corp., which so far has had no interest.

Mr. Drewry noted that sorting out the fate of both Starz and the News Corp. stake is likely to remain a huge challenge for Mr. Malone, and could prove to be more difficult once the tracking stock is created.

For his part Mr. Malone has stressed that the final structure of the tracking stock has yet to be finalized. He also said that tracking stocks “have worked well for me personally … eliminating the need to modify [Liberty’s] debt structure and avoiding the regulatory hurdles of a spinoff.”