By Ronald Grover When Liberty Media Chairman John Malone told shareholders on Mar. 15 that he intends to spin off Liberty's large -- and growing -- stable of international assets into a separate company, the common wisdom went like this: The assets are undervalued, and Malone, whose company's shares have been bouncing around the $11 to $12 range for the last year, wants Wall Street to get a good look at what he has.
Indeed, Merrill Lynch analyst Jessica Reif Cohen figures that Liberty (L) is worth $15.30 a share and that the international assets account for approximately 15% of that, or $2.25 a share. After the spin-off, Malone would own the largest cable company outside the U.S.
The math goes like this: Last year, Liberty completed a complicated tax trade that gave it 92% control of UnitedGlobalCom, which has more than 9 million subscribers in Europe, Latin America, and the Pacific region. Add 1.5 million customers from Japanese cable operator Jupiter Communications -- of which Liberty owns 45%, and you have a cable company, Liberty Media Intl, that's outranked only by Comcast (CMCSA) and Time Warner (TWX).
"ANOTHER TCI." It would also have an assortment of other assets, such as a cable system in Puerto Rico and some overseas programming channels. To top it off, Malone says he would run Liberty Media Intl himself. That should get Wall Street's interest. After all, he spent most of the '70s and '80s creating the nation's largest cable company -- Tele-Communications Inc. -- before selling it to AT&T (T) in 1999 for a cool (and later, it turned out, overvalued) $54 billion. "We see the opportunity to build another TCI, perhaps a little bigger," Malone says of his latest venture.
I'll bet. But I wonder what Malone isn't saying. Maybe all he wants is for the market to properly assess his company. But then again, Malone immediately started dropping hints that another deal could be in his future -- one that includes his old friend Rupert Murdoch. "There are assets that [Murdoch's] News Corp. (NWS) has that Liberty finds very attractive and wouldn't mind owning directly," Malone said during a conference call with analysts on Mar. 15. "And perhaps there are assets that Liberty has that News Corp. would find quite attractive over time."
What that means is anyone's guess, although it seems clear that Malone wouldn't mind having Murdoch's sports channels, or maybe the FX network. At the moment, Malone owns 17% of News Corp., 9% of which is voting shares. Maybe he would swap some of those assets for News Corp.-owned channels to go with his stakes in Discovery Network and his Starz Encore pay-TV service. But perhaps he's thinking even bigger.
REGULAR CHATS. Is it any coincidence that Malone seems to be buying cable systems in places like Japan, Norway, Germany, and France -- where Murdoch's armada of satellites don't yet reach? His birds cover Britain, Italy, the U.S., and the Asian region outside of Japan. Put the two together, and you'd have the first international media company capable of reaching into nearly every home in the world.
A Liberty spokesman says "there is no such plan right now, so anything like that is impossible to predict." A Murdoch spokesman wasn't immediately reachable, although in late December, as the mogul was completing his deal to buy a 34% stake in DirecTV, he told BusinessWeek that he considered his company "complete" and wasn't looking for any large acquisitions. Still, Murdoch allowed that "I talk to John every couple of weeks, sometime more when we're thinking of doing something." And the two have done deals in the past.
So, what if Malone took his international assets and put them together with News Corp.? For starters, he would suddenly find himself owning a nice chunk of Murdoch's company, perhaps as much as 10%. (However, with a 30% stake in News Corp. and near total voting control, the Murdoch family's Cruden Investments is in little danger of losing its grip on the company.) Now, maybe none of this piques Malone's interest. Perhaps all he really wants is to simplify Liberty's structure and make some more money for shareholders. He has done that before with spin-offs.
But the beauty of this one is that Malone would be back in the game with new currency: fresh assets in hot, growing international markets, while leaving "old" Liberty Media intact with its hodgepodge of technology, media, and other companies. That currency could be enough to buy Malone a sizable chunk of a company whose worldwide reach would make it the biggest -- and undoubtedly most powerful -- media player on the planet. You think he has worked this hard, and swung all those deals, for anything less? By Grover is BusinessWeek's Los Angeles bureau chief