Posted by: Ron Grover on November 3, 2009
Sometimes even a wheeler-dealer like John Malone outsmarts himself. That’s seems to be the situation at DirectTV. (DTV), where the razor sharp media baron seems to have dealt himself out of installing his own choice as CEO of the satellite TV giant despite once owning 57% of the company’s stock. Instead, he controls 24% of the company’s votes, but seems to have been bottled up by a very independent DirecTV board.
Those are the details that are emerging from a recent SEC filing by DirecTV. The satellite company clearly wanted to stop Malone, who buys and sells companies faster than most people change socks, from exerting too much control over the company. So in what has to have been a wing ding of negotiations, the DirecTV board swapped the DirecTV stake that Malone’s Liberty Media (LMDIA) once held for shares in DirecTV that Liberty will distribute to its shareholders. In addition, DirecTV took a $2 billion loan off Liberty’s hands that it used to buy those shares in the first place, but took Liberty’s 65% stake in the Game Show network and three Fox Sports regional networks. Malone got super-voting shares that are capped at 24% of the company’s voting shares.
What motivated DirecTV’s board to do the deal? They were angling for “the elimination of a single shareholder …with the ability to veto change of control provisions,” the company said in its SEC filing. More important, the board wanted to “reduce the level of influence that Malone could exert,” they added. Anyone need more of a roadmap than that?
Why’d Malone do the deal? Mostly for tax reasons, which seem to drive much of what the media baron does. The stock-for-stock swap allows him to avoid a ton of taxes on the appreciation in DirecTV’s stock in 2006. DirecTV sweetened the deal by giving Liberty shareholders a 5.6% premium on top of that tax-free treatment. DirecTV’s shareholders will vote on the transaction on Nov. 12.
But in doing the deal Malone seems to have also dealt himself out of a potentially richer prize. He tried for months – and seems to have given up – the idea of installing his top lieutenant, Liberty CEO Greg Maffei, as DirecTV’s CEO. Maffei is a sharp operator, and a great dealmaker, and more than likely Malone would have wanted him to begin peddling DirecTV to AT&T (T) or some other buyer. I'm figuring the board wanted to keep Malone's imagination in check.
Instead, the DirecTV board, which has eight independent members (Malone is the company’s chairman and Maffei is a board members,) blocked Maffei, who now tells folks he is no longer interested. In August, the board created a search committee, which Malone heads. But the board has clearly no intention of allowing him to railroad them into taking his choice as CEO. “They gave him what he wanted with the stock swap,” says one source close to the dealmaker.” “And that’s about all they intend to give him.”
More than likely DirecTV will name its CEO sometime in late November or early December. The candidates include Bruce Churchill, who heads DirecTV’s Latin American unit, and Cablevision president Tom Rutledge. The search committee was created after DirecTV CEO Chase Carey’s resignation in June to become News Corp(NWS)president and chief operating officer. Larry Hunter, the satellite opeator’s excecutive vice-president for legal, human resources and administration, has been serving as interim CEO since Carey’s departure.