John Malone's New Shopping Cart

Following a familiar pattern, the serial dealmaker seems to be preparing one of his obscure holdings to become an acquisition vehicle

By Ron Grover

It has been a busy summer for John Malone. In August, his Liberty Media Corp. was finally spun off from AT&T, ending months of tension between Malone and AT&T Chairman Michael Armstrong. A few weeks after the spin-off, Malone reached a final agreement to pay $6 billion for six cable-TV systems from Deutsche Telekom, gaining 20 million European subscribers for Liberty Media and making it one of the world's largest cable companies.

Here in the U.S., Malone is helping News Corp. Chairman Rupert Murdoch in his long, drawn-out bid to buy the DirecTV satellite service from General Motors. Along the way, Malone has also very quietly reactivated another of his sundry companies, which means he's likely to go on one of his characteristic buying sprees any minute now.

The company is Liberty Satellite & Technology. Never heard of it? Not many folks have. Indeed, since late last year, the five-year-old company's stock price, now around $1.70, and other financials have slipped so badly that Nasdaq delisted it. But Malone has been quietly working a series of deals designed to buttress Liberty Satellite's assets and beef up the company to Nasdaq-worthy levels. As anyone who has followed Malone knows, he's a genius when it comes to using stock as currency. His motto is spend, spend, buy, buy.


  Liberty Satellite has always been something of an orphan in the Malone family of companies, which were launched as offshoots of the mothership, Tele-Communications Inc. The satellite unit was set up in 1996 to sell satellite-TV dishes, a business Malone exited in 1999. Since the 1999 sale of TCI to AT&T, Liberty Satellite has been the place where Malone could store assets he wasn't ready to do anything with, such as a 1% stake in GM's Hughes Electronics unit and a 16% stake in Wildblue, which is building a satellite service to provide Internet and other broadband services.

Now, he seems to want to rev up Liberty Satellite's engines to be more than just a parking place for this hodgepodge. In August, parent Liberty Media swapped 100% of Ascent Entertainment Group for Liberty Satellite stock. Ascent operates the On-Command service, which provides pay-per-view movies to more than 900,000 hotel rooms in the U.S. and abroad but is a money-loser. That's just the way Malone likes it since he hates paying taxes. The swap gave Liberty Media an 84% stake in Liberty Satellite, and the company promptly announced it would soon have a 1-for-5 reverse split for Liberty Satellite, in hopes of cutting the numbers of shares floating around, thus boosting the company's stock to $10 or so and getting back on the Nasdaq.


  Malone is only warming up. As part of Murdoch's expected deal to buy GM's DirecTV service, Malone will toss Liberty's 10% stake in satellite operations in Latin America into a new company that Murdoch would create to own not only DirecTV but also Murdoch's satellites in Britain and Asia. Malone would get 4.76% of Murdoch's new satellite company, which he'll very likely transfer over to Liberty Satellite.

If all this maneuvering sounds familiar, well, it looks an awful lot like what Malone did in April, 1999, with another company no one had every heard of, TCI Music, which provided music channels to TCI cable systems. Malone swapped Internet companies he had collected to TCI Music in exchange for stock, increasing his stake in TCI Music to 95%. He renamed it Liberty Digital, and, presto, a stock that was trading at $5.50 a share before the deal jumped to nearly $44 right after it. It was a classic example of the Malone magic at work.

Liberty Digital has gone on a buying spree of its own, investing in such companies as RespondTV, which has a technology that lets cable companies sell pizzas and other stuff directly to consumers through interactive-TV programs. Liberty Digital also owns a half-interest in the Game Show Network and plenty of other companies, including Priceline, and is a partner with MTV in several online music sites.


  Would Malone like to do the same thing -- use the stock for a shopping spree -- with Liberty Satellite? You bet. When, and if, the DirecTV deal goes through, he'll have the ammunition. What will he buy? Who knows. But Liberty Satellite certainly has an interested group of investors, including one Bill Gates.

That's right. In April, Gates's private Cascade Investment LLC bought 7.79% of Liberty Satellite, paying an estimated $20 million for nearly 5.1 million shares. I'll bet Gates doesn't know what Malone is going to buy next. But he sure knows a good opportunity -- and a shrewd operator -- when he sees one.

Grover is Los Angeles bureau chief for BusinessWeek. Follow his weekly Power Lunch column, only on BW Online

Edited by Patricia O'Connell