By Ronald Grover
As folks scramble to finish their holiday shopping, Santa is making his list and checking it twice. And doing both is John Malone, the 61-year-old dealmeister who has maintained a surprisingly low profile for much of this year. Rumors that Liberty Media's chairman is ready to return to the hunt have been circulating among Wall Street money guys for months.
Look for Malone to be a partner with Rupert Murdoch's News Corp. (NWS ) in its likely bid to buy DirecTV from General Motors (GM ). Malone also is expected to play Santa in USA Interactive Chairman Barry Diller's effort to buy the U.S. film studio owned by France's debt-hobbled Vivendi Universal. And for good measure, Liberty Media President Robert R. "Dob" Bennett recently said at a New York investor conference that the company may also "put" its 42% stake in shopping channel QVC back to cable giant Comcast (COMCV ) in February. That could set off a chain reaction resulting in Malone getting a piece of the largest U.S. cable operation.
That's a lot of deals for a mogul who has been curiously below the radar of late. Malone certainly has personal reasons for that: He has been hanging close to home of late, awaiting the birth of his second grandchild. As for Liberty (L ), 2002 has seen it tilting mostly at windmills, chasing -- and failing to win -- deals to buy cable-TV systems in Germany, Britain, and Holland. True, it has made a couple of deals, involving small interactive-TV companies OpenTV and Wink Communications, but not the kind of shake-'em-up transactions that Malone is famous for.
That may change -- and soon. For one thing, asset prices are low, and opportunities are presenting themselves as outfits like Vivendi Universal (V ) struggle to restore sanity to their balance sheets. But there's more to it than savvy shopping. "John Malone wants to be relevant," explains an investment banker who has done business with the Liberty Media tycoon.
Indeed, Malone, who once saved Ted Turner from financial ruin and successfully schemed with Rupert Murdoch to take on ESPN, has been on the outside looking in for the entire year. Word has it that he wanted to force out AOL Time Warner Chairman Richard Parsons and install Turner, but a consent decree Liberty signed when Malone sold TeleCommunication Inc.'s cable service to AT&T years back prevented Malone from increasing or voting Liberty's 4% stake in AOL Time Warner (AOL ).
Malone's great strength is that, while other companies have been making silly deals and burning cash, Liberty has been watching its stockpile grow. According to Bennett, the Englewood (Colo.)-based outfit is sitting on around $2.5 billion in cash. And because Liberty wisely hedged its huge positions in such battered stocks as AOL, Sprint PCS, and Motorola, Bennett figures Liberty has $5 billion more "in the money value" that it can use to go shopping.
COMMAND AND CONTROL.
Any use of that money is likely to come with a new twist, however. After years of playing the passive investor -- standing back after giving Diller or Black Entertainment Television founder Robert L. Johnson his cash -- Malone wants to play a stronger role in any deal in which his dough is involved. Liberty lost nearly $1 billion on investments in telecom companies IGC and Teligent -- and it did so while Malone was obliged to sit in silence and watch his stake being frittered away. (Both IGC and Teligent emerged from bankruptcy in mid-September.) This time around, says Liberty spokesman Michael Erickson of any future deals, "We'd like to have control or a significant influence through board representation."
What does that mean? Well, for starters, Liberty isn't going to let Murdoch buy into DirecTV with its money without getting a say in how the satellite broadcaster is run. Malone and Murdoch have a long-standing history, most of it good, but they can be wary of one another. As Murdoch plots to spend $5 billion or more to buy a 30% controlling stake in DirecTV's parent, Hughes Electronics, Malone wants a 50/50 stake in the controlling entity, according to sources in both companies. How's that going to happen? Hard to say, but one way might be to use Liberty's 81% stake in Liberty Satellite & Technology, which in turn owns a piece of Hughes.
Malone's interest in making sure he controls a piece of DirecTV goes beyond his desire to be relevant. Liberty has stakes in everything from the Discovery Channel to the Starz Encore movie channel, so Malone wants to make sure Liberty's offerings have a home. And he's probably eager to jump-start his interactive-TV investments. Murdoch has his own interactive-TV interests and ambitions, so I suspect there will be a little friction between the two camps. As if to prove the point, Bennett has made noises lately that Liberty might just go off and bid for DirecTV by itself -- although he says he would prefer to do it jointly with News Corp.
Sources close to Malone say he also is intent on getting at least 50% of the Universal studio asset in any deal that Diller structures. Malone would likely ante up some cash, and possibly Liberty's Starz Encore pay channel as well, to make the deal happen. Malone would allow Diller to run whatever they end up with, just as he does with USA Interactive, where Diller votes Malone's 20% stake. But, as with USA Interactive, Malone would retain the ultimate authority. Put simply, he would be able to fire Diller.
It remains unclear how many of John Malone's Christmas wishes will come true. General Motors is saying it doesn't feel a pressing urgency to sell its Hughes holdings, and may even auction DirecTV. As for Vivendi, the French company is being, well, French. It dangled the notion of selling the Hollywood assets and then pulled back. Not very nice. Some might even say naughty. But that's all part of big-league media dealmaking. And now that Malone is back, you can bet he'll end up with more than a sack of coal.
Grover is Los Angeles bureau chief for BusinessWeek. Follow his weekly Power Lunch column, only on BusinessWeek Online
Edited by Patricia O'Connell