Last year, John Malone bought Humewood Castle, a neo-Gothic jumble of towers, gables, and turrets at the foot of Ireland’s Wicklow mountains. The landscape of forest and heath could hardly be more different from Colorado’s high plains, where the cable cowboy owns thousands of acres -- but it reflects a broader strategic shift for Malone.
Over the past decade, the 72-year-old billionaire has amassed a European pay-TV empire (LBTYA:US) that’s bigger than any cable operation he ever owned back home -- and he’s still buying.
In the 1980s, Malone won big with bets on startups like Discovery Communications Inc. and Black Entertainment Television and even by bailing out rival media tycoon Rupert Murdoch. But since largely abandoning the U.S. cable market in 1999, Malone has spent (LBTYA:US) about $40 billion in Europe. His Liberty Global Inc. is on track to report 2013 sales of almost $15 billion, data (LBTYA:US) compiled by Bloomberg show.
“The potential in Europe has been huge,” Malone said from his office in Englewood, Colorado. Malone in June moved Liberty Global’s tax home to London, but he still spends most of his time in the U.S.
Malone, whose family hails from the Cork region of Ireland, says he’s willing to take on debt to expand his European operations because he expects the cost of paying back loans to decline as economies improve and inflation rates rebound from crisis levels.
“A combination of cheap money and a gloomy view of the future gives rise to opportunity for those who aren’t quite so gloomy,” Malone said.
Europe has plenty of cable assets for Malone to corral, with thousands of providers across the 28-member European Union versus a handful in the U.S. And while more than 90 percent of Americans have pay-TV, only 41 percent of Europeans do, according to researcher Ovum Ltd., making the market ripe for bundled offers of Internet, phone, and programming.
“Malone coming in to Europe drives consolidation,” said Jeffrey Wlodarczak, an analyst at Pivotal Research Group in New York. He says the scale Liberty Global can achieve in Europe will allow Malone to invest in his cable systems and boost download speeds for consumers, though it may be difficult for him to raise prices because “the European market is pretty competitive.”
As he expands in Europe, Malone is running into headwinds, especially in Germany, a market Malone has long wanted to dominate. In June, he lost out to Vodafone Group Plc (VOD) in bidding for Germany’s largest cable company, Kabel Deutschland Holding AG (KD8) -- in part because he already had assets in the country and would have run into antitrust issues.
Malone “missed out big-time on Germany,” said Alex DeGroote, a media analyst at Panmure Gordon in London. “It’s the biggest market in Europe, and having critical mass there is important for anyone.”
Vodafone, which in October completed a 7.7 billion-euro takeover of the German operator, has become a formidable new rival since selling its stake in Verizon Wireless for $130 billion. On Oct. 10, Malone said the U.K. company could be “a good partner.”
Malone’s latest effort is in the Netherlands, where Liberty Global is seeking full control of cable company Ziggo NV. (ZIGGO) On Oct. 16 Ziggo said it had rejected a bid from Liberty for the 71.5 percent of the Dutch company it doesn’t already own.
With a net worth of $6.9 billion, Malone chairs three publicly traded companies: Liberty Global (which owns cable operations in 12 European countries plus Puerto Rico and Chile), Liberty Media Corp. (LMCA:US), and Liberty Interactive Corp. (LINTA:US) Liberty Media holds shares in various media outlets and Interactive owns the QVC home-shopping network and stakes in TripAdvisor Inc. (TRIP:US), Time Warner Cable Inc. (TWC:US) and Expedia Inc. (EXPE:US)
Born in Milford, Connecticut, to a schoolteacher mother and a father who was an engineer at General Electric Co., Malone tapped his penchant for technology and business as a teen by buying broken radios and fixing them for resale to friends.
He graduated from Yale University in 1963 with degrees in economics and electrical engineering, married his high school sweetheart, Leslie, and headed off to the legendary Bell Laboratories Inc. in New Jersey. There, he worked on the videophone, a product so famously ahead of its time that it never got off the ground.
In 1972, he moved on to Tele-Communications Inc., where he helped former cottonseed salesman Bob Magness turn the Colorado company into the second-largest U.S. cable operator, behind Time Warner. During the early years at TCI, Malone recalled, Bill Gates would stop by, “with a pizza and a six-pack of beer” to work on “Express,” a kind of precursor to the Internet that ran on cable pipelines.
“We tried to invent something before the Internet came into being,” Malone said. “The technologies weren’t quite ready.”
In 1999, Malone sold TCI to AT&T Inc. (T:US) for $59 billion, leaving him with control of its Liberty Media subsidiary. He has since turned that company into a giant that owns Sirius XM satellite radio and holds interests in Time Warner, Viacom Inc. (VIAB:US), concert-promoter Live Nation Entertainment Inc. (LYV:US), and bookseller Barnes & Noble Inc. (BKS:US)
After the AT&T deal, Malone ramped up investment in British satellite-TV and cable operations, in large part because his controlling stake in U.S. satellite-operator DirecTV made it difficult for him to get back into cable across the Atlantic.
“Antitrust authorities would not have been enthused about my re-entry into cable in the U.S. until I exited” satellite-TV, Malone said. “Europe seemed like a fertile place.”
In May, Malone got back into the U.S. cable market when his Liberty Media paid $2.6 billion for 27 percent of Charter Communications Inc. (CHTR:US), the fourth-largest U.S. cable operator. As part of the deal, Liberty agreed not to raise its stake in Charter above 40 percent.
At Liberty Global today, Malone’s role is more financial than technical, and he personally analyzes most acquisitions and arranges complex purchases to minimize tax, according to Adam Singer, who worked as chief operating officer at TCI International under Malone.
“Every time he does a deal, his two questions are: ‘What are the tax implications?’ and ‘What’s the exit?’” Singer said.
Germany has long been tough on Malone. In 2001, he set his sights on the television operations of former phone monopoly Deutsche Telekom AG. (DTE) That’s the same business that became Kabel Deutschland and was bought by Vodafone.
German antitrust regulators rejected Malone’s bid after he refused to spend what was needed to upgrade the cable systems to provide high-speed Internet and telephone in competition with Deutsche Telekom. Malone went on to buy the country’s second-and third-largest cable operators and merge them.
In the U.K., Malone encountered a similar setback in 2002 when bondholders declined to sell their debt as Liberty sought to take over Telewest Communications Plc and NTL, then Britain’s two largest cable-TV companies.
Malone knows how to be patient. In February, he pulled off this year’s second-biggest telecom deal, paying $16 billion for Virgin Media, which was formed through a merger of NTL and Telewest -- the companies Malone was shut out of over a decade earlier.
“John’s very intelligent, with a great knack for deal-making,” said Ted Turner, the man Malone unseated as the top private landowner in the U.S. after buying 1 million acres of New England timberland.
The Virgin Media purchase puts Malone head-to-head with Murdoch in Britain, Germany, and Ireland, where British Sky Broadcasting Group Plc (BSY) and related companies offer Internet, phone and pay-TV, sometimes delivered on Virgin’s cable systems.
The two tycoons go way back, and Murdoch was one of the first people Malone contacted when the Virgin Media acquisition was announced. Malone characterizes their relationship as friendly and says Murdoch has phoned him in the past to give a heads-up when they come into corporate conflict. Murdoch declined to comment.
In 1987, Malone helped a growing News Corp. out of a jam when Murdoch had trouble refinancing debt from previous deals. Malone arranged a $300 million bridge loan and introduced his friend and business rival to various bankers to get him “over the hump,” Malone said.
In return, Murdoch sold Malone preferred stock in News Corp. Malone says he made money on the deal, though he declines to say how much.
“The perception of two old guys duking it out isn’t accurate,” said Claire Enders, chief of Enders Analysis in London.
Since Vodafone outbid him in Germany last summer, Malone has said he’ll turn his focus to southern Europe, where cable companies are still up for grabs. That’s not a bad strategy, according to Leopold Salcher, an analyst at Raiffeisen Capital Management in Vienna, but the countries are smaller and consumer spending power is weak compared to Germany.
“Losing the battle for Kabel Deutschland was certainly a setback for Liberty since Kabel is a great asset in a big country,” Salcher said. “Southern European countries won’t be nearly as lucrative.”
Part of Malone’s strategy is offloading liabilities onto acquisition targets -- a maneuver that has led to losses at some subsidiaries. On June 17, a week after Liberty Global closed its acquisition of Virgin Media, Fitch Ratings downgraded Virgin’s debt, citing expected higher leverage under the new ownership.
“It’s risky because it’s carrying so much debt,” said Michael Dunning, the head of Fitch’s European technology and media team. European cable companies, though, should be able to handle the higher leverage because they can charge higher rates after spending billions on new technology.
As his European cable empire grows, Malone is building a trans-Atlantic property portfolio. In November, he spent some 8 million euros on Humewood, a 15-bedroom granite mansion built in 1870 on 427 acres of woods, meadows, and lakes. In August, Malone added the 195-room Trinity Capital Hotel in Dublin to the mix for about 35 million euros, beating out five other bidders.
Those properties join homes Malone owns in Colorado, Maine, Florida, and the Bahamas, where he’s renovating an island resort at Sampson Cay, said close friend David Rapley, a Denver-area engineer who serves on the boards of three Malone companies.
Rapley met Malone 30 years ago after his wife, Sandra, took an aerobics class with Leslie Malone. Several years later, on a trip to the Malones’ summer home in Maine, he was taken aback as he learned more about his unassuming host.
“In my mind I pictured a log cabin up in the woods like we have here in Colorado,” Rapley said over drinks near Liberty’s headquarters. “We came around the corner and here is this huge white, gleaming mansion with out-buildings, a big barn and acres of manicured land leading down to the water. I got out and asked Sandra, ‘What did you say John does?’”
On the way back to Denver, Rapley saw Malone’s face on the cover of a magazine. “I went to Sandra and said ‘I thought you said John had something to do with cable TV,’” he recalled. “I turned the magazine around and said, ‘He is cable TV.’”
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