This is one reason why Liberty Media says today that it will spin off its 26% ownership stake in Charter along with other assets in a publicly traded entity to be called Liberty Broadband. John Malone’s company originally planned to have a tracking stock. But the change will offer investors “greater choice, enhanced transparency, [and is] well timed with Charter’s agreements with Comcast,” Liberty CEO Greg Maffei told analysts. Charter will buy 1.4M subs from Comcast and pick up a 33% stake in a new company (temporarily called SpinCo) with 2.5M subs. That will make Charter “first stop for other cable sales,” Maffei says. The dealmaking process will be “made more easy by having a separated Liberty Broadband stock.”
“The business of movies as a traditional business has been challenged on many levels and it’s not a growth business,” said Jeffrey Katzenberg today at the Milken Institute’s Global Conference in Beverly Hills. “TV is a growth business. Short form content is a growth business. Movies are not a growth business,” he added of the shift in the industry in recent years. The DreamWorks Animation CEO was joined by Liberty Media CEO Greg Maffei on a panel at the annual boardroom confab on Entrepreneurial Leadership In the Corporate World. “The stakeholders are trapped in an enterprise that can’t get out of its own way,” Katzenberg added. “For it really to grow it needs to break out of the windows that have existed for many generations. And I think that’s 10 years away.”
The stock is down about 12% in early trading after Barnes & Noble disclosed in an SEC filing that John Malone’s media company has agreements to sell 90% of its investment to “qualified institutional buyers.” Three years ago Malone offered about $1B to buy the book retailer. When talks stalled, he agreed to pay $200M for a 17% stake. With the sale, Liberty’s ownership in the company drops to about 2%. It also gives up its right to pick two members of the B&N board and to block asset sales. Liberty CEO Greg Maffei will leave when its stock sale closes on April 8. Another Liberty exec, Mark Carleton, was also going to leave but the book retailer’s directors re-elected him.
Liberty says that this isn’t a no-confidence vote: “By reducing our preferred position and eliminating some of our related rights, Barnes & Noble will gain greater flexibility to accomplish their strategic objectives,” Maffei says. B&N Chairman Leonard Riggio echoed that message and added “Liberty’s decision to retain a portion of its investment and have active involvement on our board underscores Liberty’s ongoing commitment to Barnes & Noble.”
In this week’s podcast, Deadline’s executive editor David Lieberman and host David Bloom look at the Obama administration’s unusual intercession in the Aereo Supreme Court case on behalf of the networks and the notable absence of tech industry involvement in the case so far.
They also try to make sense of John Malone’s latest complicated stock shuffle that affects SiriusXM and Charter Communications; check in on the many Big Media highlights from this week’s Deutsche Bank investor conference; break out the checkbook for that Amazon Prime price hike; and wonder how DreamWorks Interactive can be on track for both a $310 million global box office haul for Mr. Peabody & Shermanand a write-down of $84 million for that same film.
Liberty Media Withdraws Proposal To Buy SiriusXM In Stock Reshuffling Designed To Help Charter Expand
SiriusXM shares are down about 2.4% to $3.29 in post-market trading after Liberty Media said it will sit tight with its 53% stake in the satellite radio company while it reshuffles its asset portfolio — potentially to help Charter Communications expand. “We are creating two new tracking stocks, Liberty Media and Liberty Broadband,” CEO Greg Maffei says. With the new plan, “our offer for SiriusXM is no longer applicable” although there could be further discussions about it. “We remain enthusiastic owners” of a majority stake in the satellite broadcaster. Liberty offered in early January to buy the stock in SiriusXM that it didn’t own for $3.68 a share — a mere 3% premium over the price before the announcement. SiriusXM directors named a special committee to assess the plan and ensure that it didn’t shortchange other shareholders.
In the new stock plan, Liberty will reclassify its current securities and give owners one share of the new Liberty Media and four shares of Liberty Broadband. The Broadband stock will represent the company’s interests in Charter Communications, Time Warner Cable, and location determination firm TruePosition. Investors also will have a subscription right giving them 40 trading days to buy at a 20% discount an additional share in Liberty Broadband for every five that they own. That cash will go to the cable-focused entity and “provides us greater flexibility to, among other things, support Charter in its expansion efforts,” Liberty Chairman …
John Malone’s company is the largest shareholder in Charter Communications whose hostile bid for Time Warner Cable was trumped when Comcast stepped in with its $45.2B stock offer. But while Liberty recognizes that the No. 1 cable company has the upper hand, it won’t “take any option off the table” including “if the Time Warner deal is not able to be completed,” CEO Greg Maffei told analysts today. The big question now is “how onerous the conditions will be, not only for Comcast but for the industry as a whole” to persuade Justice Department and FCC officials to approve the deal. He also noted that since Comcast is just offering stock, which has slightly declined in value since it reached terms with TWC, “we’ll see what price actually gets paid.” Meanwhile, Maffei rules nothing out saying execs will watch “with interest” how the Comcast deal proceeds. Liberty and Charter have engaged in “some talk of other forms of consolidation….We certainly learned in this process that there were many investors interesting in investing in consolidation.” The likely loss of TWC doesn’t diminish Liberty’s interest in buying the minority stake in SiriusXM that it doesn’t already own. The recent offer was “not driven” by a desire to harness the satellite radio company’s cash flow to help support a cable acquisition. The SiriusXM offer is “the right deal for Liberty and SiriusXM shareholders.” If independent directors disagree, …
Liberty Media is too important a company to ignore, but since it’s mostly a holding company for stock in other publicly traded entities there’s rarely anything surprising in its earnings report. That’s pretty much the case this morning as Liberty reported Q4 operating income of $189M, up from a $60 loss at the end of 2012, on revenues of $1.03B, up from $44M. The big difference? In January 2013 Liberty acquired a controlling interest in SiriusXM. And earlier this month the satellite radio company reported its results for the last three months of 2013 which included a 12% revenue gain vs the previous year to $1B but with a drop in profits in part due to its efforts to retire some debt. Liberty is now trying to acquire the minority interest in SiriusXM that it doesn’t own. “We believe this combination will simplify the capital structure, further align management and provide ultimate strategic and financial flexibility,” Liberty CEO Greg Maffei says this morning. On other fronts, the value of Liberty’s stake in Charter Communications appreciated 1.5% in the last three months of 2013 to $3.67B while Live Nation was +6.4% to $1.05B, and Barnes & Noble was +10.4% to $255M.
The satellite radio company has postponed from January 27 to April 25 the planned $240M share repurchase from majority owner, John Malone’s Liberty Media. But Malone shouldn’t fret: SiriusXM now says that it will buy $340M of Liberty’s holdings at $3.66 a share. Meanwhile a special committee of SiriusXM’s board is weighing the takeover offer by Liberty, which owns 52%. It has proposed a stock swap that would give SiriusXM shareholders 39% of Liberty. But their shares would not entitle them to vote on Liberty’s affairs, and would give them a negligible premium over the value of their SiriusXM holdings when the offer was made. The radio company says today that the board has hired Evercore Group to provide financial advice, and Weil, Gotshal & Manges to help with legal matters. The board committee will “review and evaluate whether the Liberty Media proposal is in the best interests of SiriusXM and its stockholders, other than Liberty.” It doesn’t plan to say anything else until it decides what to do.
Greg Maffei‘s comment today at an investor meeting sponsored by Citi resonates because his company is the leading shareholder in Charter Communications, which is preparing to make a bid for Time Warner Cable. It would be a risk, the Liberty CEO says, because “we’re being asked to pay for assumed synergies” including the possibility that Charter could reduce content and marketing costs. “Can they happen fast enough will be the real key.” But Maffei notes that “there’s also an opportunity to run the reported asset [TWC] better” adding that it “has not performed as well as Comcast and what [Charter CEO Tom Rutledge] and his team have been able to do.” Consolidation makes sense because “15, 20 years ago we did not have scaled national competitors [including satellite companies] and you didn’t have over the top [Internet competition].” Cable now faces those threats, as well as “a new set of reinvigorated cable opportunities [that] come from working together and building scale…Some of that is from consolidation and some of it is from confederation.” He acknowledged that Liberty’s new proposal to buy the 47% of Sirius XM that it doesn’t already own would give it access to the satellite radio company’s cash flow, and that could help if Charter goes after the much-larger TWC. “It says in the future there’s a lot more flexibility.” Liberty also wants to adjust its own strategy. “Eight years ago, when I joined, Liberty Media was a complete mish mash…We didn’t have controlling stakes in pretty much anything except for QVC and we had enormous tax problems trying to unwind some of those stakes.” Now that those problems have been fixed “we needed a new game.” The problem is finding an investment that makes sense in the digital age, where it’s hard to find businesses that look like they can continue to grow for a decade or more. “That may work for Coca Cola” — but it’s “unlikely that everything that sits in [Liberty] is going to be sitting there in 5 or 6 years because there’ll be change.”
John Malone‘s company proposes a stock swap that would value Sirius XM at $3.68 a share — a mere 3% premium over Friday’s closing price of $3.57. Liberty Media already owns more than 52% of the satellite radio company’s shares, so this wouldn’t change control, and it says that it won’t squeeze out other investors. It will only go ahead if a special committee of independent directors, and other shareholders, support the change. They likely would insist on a higher price. The goal is to “simplify the capital structure and pursue other economic opportunities,” Liberty CEO Greg Maffei says. The company also says that Sirius XM shareholders will benefit by ending up with 39% of Liberty, though their shares would not entitle them to vote on its affairs.
“We believe the combined company will have better access to capital and all of Liberty’s shareholders — both its current shareholders and the Sirius shareholders who become Liberty shareholders as a result of the proposed transaction — will enjoy enhanced liquidity as shareholders of a $27 billion market capitalization company,” Maffei says. Malone adds that a deal “will enable us to focus our energies on the pursuit of new opportunities across the expanded portfolio of Liberty’s businesses.” Everything that Malone does has to be seen in the context of his eagerness to help Charter Communications (where Liberty’s the biggest shareholder) buy Time Warner Cable. “There are lots of ways that something can occur there,” Maffei says. “It’s likely that (a potential deal for TWC) would close significantly later than the transaction contemplated here.”
Here’s Liberty’s announcement:
The comments by Charter CEO Tom Rutledge and Liberty Media CEO Greg Maffei on CNBC this morning may account for the 2% dip today in Time Warner Cable’s stock price. Investors are betting that Charter will make a rich offer for the No. 2 cable company. But Rutledge says that while a TWC deal could make sense, “Charter doesn’t need to do any acquisitions to be a successful company.” That was echoed by Maffei, whose company owns 27% of Charter. Although a deal with TWC would make Charter “even more attractive,” it “is not the only one” that could help.
The chairman of Liberty Media compares the growing sense of bitterness in pay TV to the dysfunction in Washington: There’s so much tension lately between programmers and distributors — especially over pricing — because “like [in] the political system, the moderates have been driven out of the business,” John Malone told an investor gathering. Internet video services led by Netflix have become so popular that they’ve pressured traditional pay TV companies to focus on short term gains instead of deals that would create long term value. Netflix has an advantage using the Internet because it reaches the entire country and its “local distribution is incrementally free.” Hollywood programmers sell to Netflix because it’s “found money.” Yet cable operators are hamstrung. “As big as Comcast is, it has a 25% footprint. You can’t buy national programming when you have that kind of footprint.” Distributors also shot themselves in the foot by waiting so long to roll out their TV Everywhere streaming services. If they’d moved more quickly then ”we’d be looking at new revenue streams and the ability to manage ad skipping and so on.” Instead, they’ve “created this window of opportunity” for Netflix.
UPDATED: John Malone’s company will give Wall Street a lot to talk about today. Shares in Liberty-controlled Sirius XM are already up about 2% in pre-market trading after it said that it will add $2B to its share repurchase program, which will include a buy-back of $500M worth of Liberty’s stake. That will leave the media holding company with 52% of the satellite radio service. In addition to that deal, Liberty says it recently completed a transaction to recover 6.3M of its shares that Comcast held. In return for its stock, the cable giant picked up Leisure Arts Inc, $417M in cash, and Liberty’s rights to a revenue-sharing deal with CNBC. Liberty also says that it will sell $500M in debt to help it pay off what it calls “privately negotiated cash convertible note hedge and warrant transactions.” It warns that the process of unwinding those deals “could have the effect of decreasing the trading price” of Liberty’s stock. In addition to all that, Liberty Interactive — a separate company that Malone controls — said that it will create a tracking stock for QVC (along with its 38% interest in HSN), and spin off its 57% voting stake in TripAdvisor. The new company will be called — what else? — Liberty TripAdvisor Holdings. The transactions are complicated and expected to be tax-free — characteristics of most Malone deals. Investors will hear more about …
Sen. John McCain just picked up an unexpected ally in his seemingly quixotic effort to pass a law that would promote a la carte pay TV pricing. Liberty Media CEO Greg Maffei — whose company is the largest shareholder in Charter Communications, and usually opposes regulation — says “there are many positive attributes” to the bill, although he questions whether it can pass. Maffei’s comment stood out at the Goldman Sachs Communacopia Conference, where analysts have been asking execs what they think about McCain’s effort and the idea of breaking up the pay TV bundle. Programming execs at the event including Disney’s Bob Iger, Viacom’s Philippe Dauman, and Scripps Networks’ Ken Lowe all but scoffed at the idea, saying that consumers are satisfied with a system that serves them well. But Maffei says that programmers’ ambitious recent price hikes threatens what he calls the “wonderful ecosystem in the television business…When you see what’s going in on places like Los Angeles with eight regional sports networks, you threaten that benign feedback loop and it’s not a good thing.” If companies don’t solve the problem then “you risk some regulatory intervention.” Cable companies now find “scale and horizontal consolidation attractive” — in part to gain leverage in negotiations with programmers. He wasn’t pressed on the latest in Charter’s effort with Liberty to combine with other operators including Time Warner Cable, Cox, and Cablevision, although he offered that “I’m not sure we have to lead the [consolidation] charge.”
Don’t look for Liberty Media Chairman John Malone to add a cable company to his own portfolio. Although he believes the industry is ripe for consolidation, it’s “unlikely that we would participate in buying stakes in other cable companies other than helping Charter,” CEO Greg Maffei told analysts today. Liberty owns about 27% of Charter, and has been eyeing merger deals with companies including Time Warner Cable, Cox, and Cablevision. Maffei didn’t rule out a hostile deal, although he’d clearly prefer one to be friendly. “I don’t think we’re making a hard statement about where our future lies,” he says. “Ultimately you have to reach some kind of consensus.” He also echoed Charter CEO Tom Rutledge who said earlier today that he’s interested in a merger, but doesn’t consider it a must. A deal “may come to pass. It may not,” Maffei says. Liberty’s investment in Charter “wasn’t conditioned around that optionality.” Maffei says he’s upbeat about the opportunities to sell video programming, despite growing talk from execs including Cablevision CEO Jim Dolan about a future where cable companies just offer broadband — allowing others to provide video over the pipe. But Maffei says that operators will have to think more seriously about replacing today’s all-you-can-eat pricing for broadband with a model that charges people based on how much capacity they use. “There is a risk in a world where you have increasingly …
Deal discussions seem to be at an early stage according to the report about them today on Bloomberg, citing “two people with knowledge of the matter.” Execs haven’t decided how a deal might be structured, or even who’d be the acquirer. Still, the disclosure of Cox President Pat Esser’s conversations with Liberty Media, which owns 27% of Charter, helped to send cable stocks on a wild ride today. Charter jumped 3.7% in mid-day trading while Time Warner Cable — another potential target for Charter — is -2.3%. (Cablevision is up about 4% after CEO Jim Dolan said he wouldn’t rule out a sale.) Analyst Craig Moffett says a combo of Charter and privately held Cox “makes a ton of sense for Charter.” The companies are close in size (Charter with 4.4M subs and Cox with 4.8M). Since they could merge as equals, “nosebleed leverage wouldn’t be necessary” leaving open the possibility of making additional deals. In addition, a merger would make Charter and Cox “a player of real scale” able to negotiate lower prices from broadcasters and cable networks. The analyst adds that Liberty Chairman John Malone is close with Cox Enterprises’ Jim Kennedy.
Debt holders shouldn’t be as enthusiastic as stock buyers seem to be about the talk of a possible marriage between Time Warner Cable and Charter Communications, Moody’s Investors Service warns today. Liberty Media’s John Malone fanned the speculation of a possible deal after his company paid $2.6B for a 27.3% stake in Charter. That has contributed to a 14.6% jump in Time Warner Cable‘s stock price over the last month. But Charter, with a market value of $12.7B, might bite off more than it can chew if it goes after TWC, which is valued at $31.9B but probably would cost a buyer much more. Even if Malone paid for half of the $40B that might have to be borrowed to make a credible offer, the company created by a Charter-TWC merger would be left with about $60B in debt, “making it the largest high-yield non-financial corporate issuer by far and among the ten largest investment grade non-financial corporate issuers,” Moody’s SVP Neil Begley says. Charter’s need to borrow for a megadeal “would likely result in higher credit risk for bondholders” since Malone “would likely want to limit his dilution and exert effective control in the transaction or series of transactions.” Lenders also are at risk because their agreements with TWC don’t give them special rights if there’s a change in control. And the company doesn’t have a dominant shareholder (like …
Shares in Time Warner Cable, Charter, and Cablevision popped this afternoon after Bloomberg reported that the one-time King of Cable is “exploring scenarios” to help Charter buy one of the other companies. Investors have speculated for weeks about a deal, seen as a real possibility since May when John Malone‘s Liberty Media paid $2.6B for a 27.3% stake in Charter. Today’s story took things further, citing unnamed sources who added details — including one who said that Malone and Charter “would like to get a friendly deal done [with Time Warner Cable] in the coming months.” Charter needs to show that it can afford to play; its $12.5B market value pales next to Time Warner Cable’s $31.7B. A buyer likely would have to pay much more: Evercore Partners’ Bryan Kraft says this week that TWC shareholders would want “a significant premium” to compensate them for giving up control, accepting additional risk, and creating most of the cost-saving synergies.
UK telecoms giant Vodafone says it will pay 87 euros a share for Germany’s largest cable operator, Kabel Deutschland. The $10.1 billion deal will give Vodafone 32.4 million mobile, 5 million broadband and 7.6 million direct TV customers in Germany. Kabel Deutschland welcomed the offer saying “a future combination with Vodafone promises highly attractive long-term benefits for both companies, their customers, workforces and shareholders.” Vodafone’s move looks set to quash a bid by John Malone’s Liberty Global which had offered about 85 euros per share for the company. Liberty was understood to be structuring an asset offer as opposed to cash to get around competition hurdles since it already owns Germany’s second biggest cable outfit, Unitymedia. JP Morgan analysts said today that Liberty could still make a counter-offer, but noted that its appetite “may be tempered by the significant regulatory risks of such a transaction.”