Don’t expect Malone the ‘cable cowboy’ to ride into the sunset; History suggests it would be unwise to write off Liberty Media

March 20, 2014 12:16 pm
Don’t expect Malone the ‘cable cowboy’ to ride into the sunset
By Matthew Garrahan
History suggests it would be unwise to write off Liberty Media
When Comcast delivered its surprise bid for Time Warner Cable last month, most observers assumed it would knock the so-called “cable cowboy”, John Malone, off his horse.

The Colorado billionaire earned his spurs – and his nickname – long before his Liberty Media and Liberty Global groups started rolling up swaths of the US and European cable television sectors. He had long coveted Time Warner Cable, and mounted a hostile bid using Charter Communications, a smaller cable television operator in which Liberty Media group holds a 27 per cent stake.
But Comcast’s whopping $158.82 a share all-stock offer was valued at $42.5bn the day it landed – instantly trumping Charter’s lower offer of $132.50. As such, it appeared to end Mr Malone’s hopes of adding a combined Charter-Time Warner Cable to a portfolio of investments across Liberty Media and Liberty Global, which already includes LiveNation, the global concert and ticketing operator, Sirius XM, the satellite radio group, and Virgin Media, the UK cable TV provider.
Market chatter suggests an improved bid by Charter for Time Warner Cable will not be forthcoming. Comcast and Time Warner Cable certainly seem unconcerned: recent public comments by senior executives have focused on their confidence that the acquisition will not face significant regulatory hurdles, rather than any risk of a revived Charter bid.
However, history suggests it would be unwise to write off Mr Malone. There are few more accomplished – or aggressive – dealmakers in media, as Rupert Murdoch knows to his cost. A decade ago, Mr Malone began to build a position in News Corp voting shares, a move that threatened to undermine Mr Murdoch’s family control over the company. Mr Malone then secretly added to the stake, outfoxing Mr Murdoch who was forced to hand News Corp’s shares in DirecTV to Mr Malone in exchange for the stake.
Last week, Mr Malone restructured his US holdings to give Liberty Media more firepower for acquisitions. The company launched two new tracking stocks and dropped a bid to buy the 47 per cent of Sirius that it did not own, in favour of a rights issue to raise new funds.
Likely acquisition targets are smaller cable operators, such as Cox Communications – although it is unclear if family-owned Cox would sell – as well as the 3m or so subscribers that will probably be jettisoned by Comcast to ensure its Time Warner Cable deal is cleared by regulators.
Mr Malone may also have his eye on bigger prizes – particularly if Comcast shares keep falling. Comcast stock is off 10 per cent since it bid for Time Warner Cable, which has driven down the value of its all-share offer by a corresponding amount. Might an improved Charter bid with a larger cash component be enough to sway investors in Time Warner Cable?
Analysts think not. “Other than a regulatory pushback, it’s hard to see how Comcast doesn’t get this deal done,” says Richard Greenfield, an analyst with BTIG Research.
Not everyone is happy about the power Comcast will yield once it has absorbed Time Warner Cable. Last week, Chase Carey, the president of 21st century Fox, became the most high-profile corporate figure to voice concerns about the tie-up, pointing to the combined company’s dominance in providing high-speed internet access. Once the deal completes, about 40 per cent of US homes will get their internet from Comcast. “Are you really headed to every home having simply one broadband provider and what are the implications of that?” he said at an investment conference.
Companies from all corners of the media industry will be affected by a bigger and stronger Comcast, including several of Mr Malone’s investments. He has a personal stake in Discovery Communications, which owns channels such as TLC and Animal Planet. Discovery would have to negotiate distribution agreements with Comcast-Time Warner Cable and, in the process, compete with cable channels owned by NBCUniversal, a Comcast subsidiary.
Mr Malone has the motivation to build a viable competitor to a bigger and stronger Comcast at a time when broadband and pay-TV is in flux. Possible joint ventures and acquisitions abound – with satellite companies, such as DirecTV, and Dish Networks, and telecom groups, such as Sprint. With a possible war chest at his disposal once he completes the Liberty Media rights issue, do not expect Mr Malone to stand idly by. The cable cowboy is exploring every deal option. Comcast may want to keep the champagne on ice – at least for now.