Copyright 2003 Gannett Company, Inc.
July 7, 2003, Monday, FIRST EDITION
New York — Liberty Media Chairman John Malone is poised to re-emerge as the king of cable, this time in programming, following his agreement on Thursday to pay $7.9 billion in cash and stock to buy out partner Comcast's 57.5 percent stake in QVC.
Malone retreated to the sidelines after he sold Tele-Communications Inc., then the No. 1 cable company, to AT&T in 1999. He tended to Liberty, which owns the Starz and Encore premium channels and holds stakes in Discovery, News Corp., AOL Time Warner, Interactive (formerly USA Interactive) and other companies.
But the amicable deal for the rest of QVC it didn't own strengthens Malone's ties to Comcast CEO Brian Roberts — the No. 1 cable operator, with 21.3 million subscribers. Malone's already tight with News Corp.'s Rupert Murdoch, who is buying a controlling stake in DirecTV — the No. 1 satellite company, with 11.4 million customers.
Malone could emerge as one of their top program suppliers if he buys Vivendi Universal's Universal Studios movie, TV and theme park properties and USA Networks cable channel businesses.
If he does, "He's in an analogous situation to the one he was in in the glory days of TCI," says Janco Partners' Matthew Harrigan.
Universal's movies and TV shows could make Starz more competitive with HBO and Showtime. Malone's programming clout and friendship with the top distributors also would make it easy for him to launch channels.
The QVC deal shouldn't hamper Malone's ability to bid on the Vivendi properties — particularly after it cut the cost last week by deciding its music company, the world's largest, would not be part of the package. Vivendi also is negotiating with MGM, NBC, Viacom and a group led by former Seagram CEO Edgar Bronfman Jr.
With the home-shopping giant expected to generate $506 million in free cash flow this year, Liberty "should be able to borrow $4 billion from QVC alone," says Merrill Lynch's Jessica Reif Cohen. The Vivendi assets still for sale are expected to go for about $15 billion.
Liberty also expects investors to applaud the QVC acquisition. Once the deal closes, expected by year's end, then "You can't just replicate Liberty by buying the stocks we own," says Mike Erickson, vice president for investor relations.
Many also feared that, as a hodgepodge of investments, Liberty was vulnerable to being regulated as a mutual fund. That could have meant higher taxes and restrictions on its decision making.
Comcast also walked away happy with a sale price for QVC higher than analysts had anticipated at about 15 times cash flow. "This strengthens a balance sheet that was already in good shape," says Comcast CFO John Alchin.
To make the deal, Liberty and Comcast set aside the terms of their original QVC partnership.
In March, Liberty had started a breakup process that called for two investment banks to put a value on QVC. Based on their price, Comcast had first dibs to buy Liberty's share; if it didn't, Liberty could buy.
But the companies decided not to leave things to chance and negotiated terms directly — without opening the bankers' envelopes.
"It was just a better process," says Comcast co-founder Julian Brodsky.