John Malone is a legendary financial engineer. He’s value oriented, specialized in the entertainment and media industry (most notably cable) and known for being exceptionally shrewd when it comes to special situations.
An awesome lecture by Dr. John Malone:
John Malone talks of his past and future: Part One
This is a great interview published in the Denver Business Journal in 2009 (found at manualofideas.com).
“Malone: The concept that cable television looked more like real estate than it did manufacturing was always obvious, … to me, anyway. And I think the financial markets really didn’t have a model for cable, because the industry was a small, startup industry with no real following. Coming out of that period of the ’70s, the industry needed some model, some metric how the market could value us.
We decided out here in Colorado — not just us, but the other companies out here — to go on a cash flow metric very much like real estate. Levered cash flow growth became the mantra out here. A number of our eastern competitors early on were still large industrial companies — Westinghouse, GE, — and they were on an earnings metric.
It became obvious to us that if you were going to be measured on earnings, it would be real tough to stay in the cable industry and grow. We needed to be measured much more like real estate as an industry.”
“I used to go to shareholder meetings and someone would ask about earnings, and I’d say, “I think you’re in the wrong meeting.” That’s the wrong metric. In fact, in the cable industry, if you start generating earnings that means you’ve stopped growing and the government is now participating in what otherwise should be your growth metric.”
A brief history on John Malone by Howard Edward Haller, Ph.D
Dr. John Malone, coverage/interview from 1999 found on youtube.com
“John Malone of Liberty Media” by Tariq Ali at Streetcapitalist.com
“John C. Malone” on Wikipedia.org
“Infobahn Warrior” on wired.com (1994)
“John Malone” interview with Tryg Myhren on TheCableCenter.org (2001)
MYHREN: Let me… while we’re on that subject, let me ask you something, and before we get to issues on how you took this colossus and began to figure out how to rationalize it in the future, there’s this issue when you’re talking about regulation, talking about the relationship with Congress, of sort of the John Malone that a lot of people will talk about, which is a fellow who’s got enormous vision, financial and structuring capabilities, better technology understanding than any of the other chief executives across the media businesses in the telecommunications business, and I think that it’s generally agreed that you have all of those things, plus you’ve created great relationships with a lot of critical people. You’ve got really good entrepreneurial drive, really outstanding. You put all of that together, from the vision to all the skills and the drive, they’re all the positives, but there are those who have said, “Gee, John has a blind spot and the blind spot might have something to do with public policy, regulation, and public process.”
MALONE: I hate those guys!
MYHREN: There’s a certain impatience that people have noticed.
MALONE: Well, they’re irrational. The problem is that I’m a planner and I like predictable processes and when you get into the law and you get into politics, you can’t predict it. It becomes just a wild card and it’s been very hard over the years to deal with that. I mean, as you know, because you ran a cable company, the local franchising process was brain damaging alone.
“John Malone” on AngelFire.com (2001). A reveiw of the book The Cowboy:
“Dr. John Malone is considered by the industry players and his critics as a conservative (Colman1998) and “a legendary taxophobe” (Sloan 1999, 44). The media titan has the reputation of being “one of the most brilliant and ruthless operators in the television business” (Hofmeister 1999, C1). His assets and business ties through TCI include Time Warner, USA Networks, Discovery, TV Guide and more recently News Corp. (Hofmeister 1999). Liberty Media, a part of TCI, adds assets and investments in cable television programing, high-tech and international media (Fillion 1999).
Malone has instigated several successful mergers over the past few years. Some call the 1998 merger between TCI and AT&T “the biggest deal in world media history” (Horrie 1999). Following the 1994 failed merger of TCI and Bell Atlantic, Malone was wary of merging with another phone company for fear of another regulatory setback. Malone also tread softly into the merger for fear of being out of debt. When he took control of TCI years earlier, it was $130 million in debt (Horrie 1999). Through some creative financial engineering, Malone used the debt as a tax benefit, using liquidity to boost return on equity (Estrella 1999). Following the TCI/AT&T merger, Malone was left debt-free with $9 billion in cash to invest as he pleased (Colman 1998). Mergers reshape the telecommunications industry, allying potential competitors for mutual gain. Malone wanted to get bargaining material and control of Liberty Media out of the deal, and “AT&T, the nation’s biggest long-distance company, wants to use TCI’s cable wires to bypass local phone companies (and the fees they charge) and offer customers telephone and Internet services directly” (Sloan 1999, 44).
Another more recent merger took place in April 1999 between TCI and Rupert Murdoch’s News Corp. Besides its role as a major player in global satellite television, News Corp. also controls the Fox network, the 20th Century Fox studio, the L.A. Dodgers, and several newspapers around the world (Fillion 1999). Murdoch asked Malone to sit on the News Corp. board, which secures international distribution of Liberty’s interactive channels (Hofmeister 1999). The TCI/News Corp. merger also puts Malone in a nice position in the expected struggle for control after Murdoch’s death (Horrie11999).
Mergers result in synergistic relationships, on which Malone seems to thrive. “Malone is concentrating his portfolio on companies with interlocking agendas that can be allied strategically to their mutual benefit” (Hofmeister 1999, 44). With interests in all areas of telecommunications, Malone is in the position to control strategic alliances in cable, online and interactive realms. Synergies verging on monopolies attract government regulatory attention.“
“John Malone Finally May Get His Wish” on TechBastard.com (2001)
“It appears that the main reason Liberty belongs to AT&T at all is so that Malone and company can avoid having heavy taxes levied on their investment income. But in return for the tax shelter, AT&T has stipulated that Malone can borrow only up to 25 percent of Liberty’s stock market capitalization, so as not to unduly drag down AT&T’s credit rating. Unfortunately, Liberty has lost more than half its value from the company’s year’s high, trading currently around $14, which cramps its ability to raise capital.
Clearly, Liberty Media would like to be free to raise more working capital for itself. If Liberty and AT&T can get a favorable ruling from the IRS that will afford Liberty a tax shield similar to the one it currently enjoys, Malone and company hope to sail off, free and unfettered, from AT&T to rampage across the telecommunications and media industry and to turn obscene profits.
The IRS’ favor also would free Malone, AT&T’s largest single shareholder, from his duties on the AT&T board, which has not been a productive engagement for him. His stake in the company has shrunk immensely since he came aboard, as AT&T shares have dropped from a high of around $60 to about $22 on Friday. He has been among the most vocal proponents of complex financial and structural changes aimed at increasing the value of his AT&T shares, and now that AT&T has split itself into four separate companies, there’s seemingly little else for a financial engineer like himself to do. “
I also recommend reading the part about the Liberty Media spin-off in Joel Greenblatt´s “You can be a stock market genious“.
Articles on Liberty Media with referance to Malone
“Liberty Media Speaks To Reverse Morris Trust Issues Regarding Sirius XM” by Spencer Osbourne
“A Donald Rumsfeld Lesson Regarding Liberty And Sirius XM” by Spencer Osbourne