It’s natural to wonder whether Liberty Media Chairman John Malone’s new acquisition of 27.3% of Charter Communications is merely Step One in a plan to make him a U.S. cable titan — the role he played until 1999 when he sold Tele-Communications Inc to AT&T. And while Liberty CEO Greg Maffei doesn’t predict that, he also didn’t rule it out today in a quarterly earnings call with analysts. He says that cable “could be in for a round of consolidation” at a time when it’s so inexpensive to borrow money and large companies covet opportunities to cut costs — for example by negotiating lower prices from programmers. He cryptically adds that even though Charter can do just fine as a stand-alone entity, “we’ll see” whether it ends up being “a consolidator or condolidatee.” Liberty’s stock purchase agreement gives it the right over time to raise its stake to 40%. Will it do so? “We’ll see what time holds,” Maffei says.
Liberty Media is too important a company to ignore. But the Q1 earnings statement out this morning is a jumble after it spun off Starz and formally took control of Sirius XM. It reports net earnings of $8.1B, up from $151M in the quarter last year — almost all of the gains from transactions — on revenues of $789M, up 2,154%. Operating income, a more revealing measure in this case, came in at $160M, up from a $32M loss, while cash flow was +$288M to $271M. Basically the results reflect the generally upbeat Q1 performance of Sirius XM, which reported its results last month. In addition, Liberty says its holdings in Live Nation appreciated 35.2% since the end of 2012 to $668M, while its Barnes & Noble investment was +5% to $275M, and other investments were +7.5% to $887M. CEO Greg Maffei says that Liberty is “extremely pleased with the operating results of our newest subsidiary, Sirius XM, which grew its subscriber base to over 24M.” He adds that following Liberty’s May 1 acquisition of 27.3% in Charter Communications — giving it four board seats there — “we look forward to working with [CEO] Tom Rutledge, his team, and our fellow board members.”
Tom Mockridge, the former CEO of Rupert Murdoch’s News International, has been named successor to Virgin Media‘s outgoing CEO Neil Berkett. The UK’s Virgin Media is in the process of being acquired by John Malone’s Liberty Global in a $23.3B deal, setting the stage for a battle of the billionaires in the UK pay-TV sector where Murdoch’s Sky is the number one operator and Virgin is number two. Mockridge resigned as the News International head in December 2012 after assuming the reins in July 2011 amid the phone hacking scandal. He spent more than two decades at News International owner News Corp. where he also held the posts of chief executive of European television operations and chief executive of Sky Italia. Liberty’s takeover of Virgin will be voted on by shareholders in June with the acquisition to close shortly thereafter. Berkett will leave Virgin when the deal is finalized.
STAMFORD, Conn. & ENGLEWOOD, Colo. (May 1, 2013) –Charter Communications, Inc. (Nasdaq: CHTR) (“Charter”) and Liberty Media Corporation (Nasdaq: LMCA, LMCB) (“Liberty”) announced today that Liberty has completed its previously announced agreement with investment funds managed by, or affiliated with, Apollo Management, Oaktree Capital Management and Crestview Partners to acquire 26.9 million shares and 1.1 million warrants in Charter Communications, Inc. for $2.6 billion, which represents a 27.3% beneficial ownership in Charter using shares outstanding as of December 31, 2012, and a price per share of $95.50.
No need to guess what accounted for the big increase. When Liberty Chairman John Malone calls the shots, big money decisions are almost always driven by a desire to minimize taxes. (One of SVP Albert Rosenthaler’s chief jobs last year was to “participate actively” in the Reforming America’s Taxes Equitably (RATE) Coalition, which lobbies for lower corporate tax rates, according to the Liberty proxy filed at the SEC today.) Liberty execs loaded up last year, the proxy says, because ”we wanted to avoid a potential loss of the compensation deduction” if tax laws changed this year, which seemed to be a real possibility late last year as the country approached the so-called fiscal cliff. That contributed to Maffei‘s lopsided compensation package which included $875,109 in salary, a whopping $53.9M in option awards, $2.2M in non-equity incentives, and $252,323 in other compensation. The total makes Maffei the second highest paid Big Media CEO for 2012 — behind CBS’s Les Moonves who made $62.2M — based on the proxies filed so far. Malone, who controls 43.1% of the company votes, defers most of his compensation and just collected $807,366, +50.7%. All of the other execs named in the proxy saw their packages increase anywhere from 589% to 706%.
In what would amount to its latest bold move in the European cable sector, John Malone’s Liberty Global is reportedly considering a takeover bid for Germany’s Kabel Deutschland. Liberty this week was granted approval by the European Commission to proceed with its $23.3B acquisition of the UK’s Virgin Media and last month it bought a minority stake in Dutch cable operator Ziggo. Liberty is already present in Germany where it controls the country’s second-largest cable company, Unitymedia. Citing sources familiar with the situation, Bloomberg reports that Liberty has not made a decision on Kabel Deutschland and is aware of potential antitrust issues. Kabel Deutschland is also a takeover target for Vodafone Group, Bloomberg sources said. Kabel stock was up to 73.32 euros in Frankfurt trading this afternoon, valuing it at $8.5B. An acquisition by Liberty would add 8.5M subscribers to its existing 7M and create a rival to Deutsche Telekom and Vodafone, Bloomberg noted.
Liberty Global chairman John Malone is a step closer to facing off in the British cable biz with long-time frenemy Rupert Murdoch. European authorities today cleared Liberty’s $23.3B takeover of UK cable operator Virgin Media. The European Commission said its investigation “confirmed that the transaction would not raise competition concerns, in particular because the parties operate cable networks in different Member States and because of the merged entity’s limited market position in the wholesale of TV channels in the UK and Ireland.” Liberty already operates in 10 European Union states, including Ireland, but not the UK. Virgin is the second largest pay-TV operator in the UK where it competes, notably, with the News Corp.-controlled Sky. The Commission said the combined group “would still face sufficient competitive constraint from other players.” The deal was originally announced in February. In March, we reported that Virgin Media CEO Neil Berkett will exit with $86.8M in severance, options and rewards once the transaction is completed.
The former King of Cable — who recently agreed to buy more than 27% of Charter Communications – has a bracing warning for companies such as Disney and News Corp that hope to keep raising prices for their sports programming. “You have an unsustainable model,” he told CNBC’s David Faber in an interview. About 80% of viewers would not even pay the wholesale cost for sports if given a choice, he says. And pay TV providers may offer that, perhaps by teaming up with Netflix. “This stuff is getting too expensive for too many households.”
Greg Maffei seems open to all kinds of possibilities for the properties his company controls. The newly anointed chairman of Sirius XM told CNBC’s David Faber today that Liberty “absolutely” might consider spinning off the satellite radio company, making it independent again. And he says that Starz is “on the right path” — but may benefit from an alliance with a bigger partner. He added in the wide-ranging conversation that it appears from sales at QVC that consumer spending became “surprisingly strong” beginning in February.
Liberty Media Chairman John Malone‘s company controls Sirius XM, but he and Liberty General Counsel Charles Tanabe no longer want to sit on the satellite radio provider’s board, according to the company’s proxy filed at the SEC this afternoon. No problem: The replacements likely won’t lead a palace revolt. Discovery CEO David Zaslav pretty much owes his job to Malone, who controls about 29% of Discovery’s voting shares, and sits on its board. And Malone’s 42-year-old son, Evan, sits on Liberty’s board and lately has worked in engineering and real estate in Philadelphia where he also runs a wine bar. Aside from that news, the proxy offers the usual info about executive compensation — including the 2012 package for former CEO Mel Karmazin, who left in December. It includes $1.5M salary, and a $9.5M bonus. The total is 5.3 times more than the median for the other top execs, which would trigger alarm bells about Karmazin’s clout if he were still there. Shareholders at the May 21 annual meeting in New York will vote on an investor-submitted resolution that would require Sirius XM to regularly disclose a detailed succession plan. The board opposes the proposal, calling it “unnecessary.”
In a further sign of John Malone’s increasing European cable ambitions, Liberty Global has acquired a 12.65% stake in Dutch operator Ziggo. It’s paying 632.5M euros ($810M) for the minority stake in the Netherlands’ biggest cable company that serves around 3M households. Liberty Global is already in the Dutch cable TV business via its subsidiary UPC, the area’s second largest provider. Global said today that it considers the acquisition of the minority Ziggo stake as “an attractive opportunity to make a strategic investment in a market where it already enjoys a sizeable presence.” Earlier this month, Liberty Media agreed to pay $2.62B For 27.3% of Charter Communications in the U.S. and in February, Liberty Global said it would acquire the UK’s Virgin Media in a stock and cash deal valued at approximately $23.3B.
John Malone’s back in the U.S. cable business. His Liberty Media has agreed to pay $95.50 a share for most of the stakes in Charter currently owned by Apollo Management, Oaktree Capital Management and Crestview Partners. (Crestview will hang on to 7.4% of Charter and Oaktree will keep 2.2%.) The transactions likely will close “in the first half of the second quarter” of this year, the companies say. When that happens Liberty will control four seats on Charter’s board: They’ll be held by Liberty chairman Malone, Liberty CEO Greg Maffei, Liberty Global CTO Nair Balan, and Barnes & Noble CFO Michael Huseby. But Liberty can’t take over Charter just yet. Malone’s company agreed not to up its stake in Charter beyond 35% until January 2016 and after that must stay below 39.99%. Malone was considered the king of cable in the U.S. until 1999 when he sold Tele-Communications Inc — the dominant operator at the time — to AT&T. Charter had about 4M video subscribers at the end of 2012, making it the No. 4 cable operator.
Charter shares jumped 10% yesterday, to $98.04, when word of the deal leaked, and are up an additional 1% this morning. Liberty was up 3.8% yesterday and a little under 1% this morning. “Our initial read is that this is OK for Liberty, Sirius, and other assets in Liberty’s portfolio, although we await additional detail on the ‘new loan arrangements’ used to finance the transaction,” Lazard Capital Markets’ Barton Crockett says.
Here’s today’s announcement:
The cable company’s stock is up 8.4% after The Wall Street Journal said that John Malone’s Liberty Media is “nearing” a deal to pay close to $2.5B for the equity. If correct, then it would mark Malone’s return to the U.S. cable business — which he left in 1999 when he sold Tele-Communications Inc to AT&T. It also may indicate that Charter CEO Tom Rutledge harbors big ambitions for the No. 8 cable company with 4M subscribers. Charter recently paid $1.63B for cable systems that Cablevision owned in several Rocky Mountain states and lately has figured in some speculation that it may try to buy Cablevision itself — where Rutledge formerly served as COO. Liberty could afford the deal “if it sold some of its non-core public equity stakes” such as stakes in Time Warner, Time Warner Cable and Viacom, Lazard Capital Markets’ Barton Crockett says. With Malone’s history as an owner of cable systems, he adds, Liberty investors “would likely be comfortable with him sticking to his wheelhouse.” Rutledge told analysts this month that “there are some advantages to scale,” but Charter doesn’t need to make a deal to become successful. The centerpiece of his strategy is an effort to upgrade the company’s technology to make its services all digital. “I always had looked at the business of Charter as a greenfield opportunity or a diamond in the rough and it is …
Liberty Media owns about 27% of the live entertainment power, so it’s not surprising to see its CEO at the head of the table. Live Nation CEO Michael Rapino says that Greg Maffei — a former CFO at Microsoft and Oracle — can help “as our team executes on the three-year plan, driving profitability and shareholder value.” This is the latest of several recent changes in the Live Nation board room. Irving Azoff, who had been executive chairman, resigned at year end and Cablevision CEO Jim Dolan followed in February. Live Nation shares are up 26.5% over the last 12 months, closing Thursday at a 52-week high of $11.88.
Once John Malone’s Liberty Global finalizes its $23.3B acquisition of the UK’s Virgin Media, Virgin CEO Neil Berkett will leave with $19.6M in severance and $67.2M in other options and rewards, a company spokesman confirms. Berkett joined Virgin as COO in 2005 and was named CEO in March of 2008. The native New Zealander said he would exit after the merger closes, which Liberty Global expects will be in the second quarter of this year. Under Berkett’s stewardship, Virgin Media’s share price has tripled as it competes in the pay-TV, telephone and broadband space that is also inhabited by the News Corp.-controlled BSkyB and by BT, among others. The UK’s second largest pay-TV operator, Virgin Media has 4.9M subscribers. A search is currently underway for Berkett’s replacement and the exec is unsure of his future plans. “I haven’t thought much ahead about what I’d like to do,” he said at last week’s Cable Congress in London.
Starz shares are up 3.2% this morning after Liberty Media CEO Greg Maffei told investors that we’re entering a period of programming consolidation and “we’ll see whether there’s a partnership for Starz or not.” Some investors have looked at the premium cable networks operation as a takeover candidate after Liberty spun it off into a separate company. (Maffei remains Starz’ chairman.) Even if a deal doesn’t materialize, Maffei told the Deutsche Bank Media, Internet and Telecom conference that he likes Starz’ business model. The recent renewal of the film rights deal with Sony Pictures helps because Starz needs time to develop successful original series. “You probably couldn’t ramp up original programming fast enough” to compensate for the loss of Sony, he says. The value from the originals comes from Starz’ ability to raise the rates it charges pay TV distributors and “we’re not going to see rate increases for quite a while.” Indeed, some distributors demanded lower rates when Starz distributed its content through Netflix. Since that agreement expired last year, “I’m optimistic about our ability to move pricing going forward,” Maffei says. He also continues to believe that someone will introduce a premium-priced streaming service that could offer Starz’ programming. “Traditional distributors won’t be happy, but they’ll be understanding that they’ll be playing on a level playing field.”
Liberty Media CEO Greg Maffei, whose company owns about 17% of Barnes & Noble, doesn’t seem impressed by this week’s disclosure by the book store chain’s founder Leonard Riggio that he may try to buy its retail operation. “It’s very preliminary,” Maffei told analysts today. “We’ll see where Len goes with it.” Maffei speculated that Riggio may have been legally bound by SEC rules to express an interest in buying just to keep the option open. “It was very logical that he would want to be interested,” Maffei says. He adds that he’ll “wait to see what happens” before saying whether Liberty might support or oppose a takeover. Riggio’s disclosure sure looked serious. He said on Monday that his purchase price “would be negotiated with the Board” and its advisers and “is currently contemplated” to include cash and assumption of debt. The company turned the negotiations over to a special board committee and hired outside financial and legal advisers. Maffei doesn’t sound like he wants to sell (which would also be a smart way to help negotiate up the price). Barnes & Noble’s bricks-and-mortar stores have “probably performed better than most outside observers would have thought, and better than we have thought” since 2011 when Liberty first invested. “We’re of the view that there will be retail bookstores around for a long time,” he says. “We really thought of ourselves …
ITV, the UK’s leading commercial web (and home to Downton Abbey) has been the subject of takeover chatter in the past year, but renewed talk set the market abuzz on Friday and today. The stock rose as much as 3.3% in London trading today, after already jumping 3% at the end of last week. Shares closed at 120.3 pence this afternoon. The hikes come as Citigroup put the company on a list of European firms that could become takeover targets or begin share buybacks. Nomura also reiterated its buy recommendation, according to Bloomberg. Liberty Global’s move to acquire Virgin Media in a $23.3B merger earlier this month has fueled takeover talk in the sector and private equity groups are thought to be the most likely suitors in the event of a move on ITV. But, other media groups have been mentioned as potential bidders including RTL, NBC, Mediaset and Time Warner, The Guardian reports. According to The Evening Standard, traders have also suggested ITV could attract interest from TV and music mogul Simon Cowell and retail billionaire Sir Philip Green.
UPDATE 5:21 PM: Liberty Global and Virgin Media confirmed late today that Liberty will acquire Virgin Media. Here’s the release:
ENGLEWOOD, Colo.–Liberty Global, Inc. (“Liberty Global”) (NASDAQ: LBTYA, LBTYB and LBTYK) and Virgin Media Inc. (“Virgin Media”) (NASDAQ: VMED; LSE: VMED) today announced that they have entered into an agreement, subject to shareholder approvals, pursuant to which Liberty Global will acquire Virgin Media in a stock and cash merger valued at approximately $23.3 billion.
Under the terms of the agreement, Virgin Media shareholders will receive $17.50 in cash, 0.2582 Liberty Global Series A shares and 0.1928 Liberty Global Series C shares for each Virgin Media share that they hold. Based on Liberty Global’s Series A share price of $69.46 and Series C share price of $64.50 as of February 4, 2013, this implies a price of $47.87 per Virgin Media share, reflecting a 24% premium to Virgin Media’s closing price on February 4, 2013.1
PREVIOUS: Setting the stage for a battle of billionaires John Malone and Rupert Murdoch, Virgin Media has just released a statement regarding yesterday’s news that Malone‘s Liberty Global is prepping a $20B+ bid for the group. The UK’s second largest pay-TV operator confirmed it is “in discussions” with Liberty Global “concerning a possible transaction.” A move by Malone on Virgin and its 4.9M subscribers would pit him against long-time frenemy Murdoch whose …