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April 18, 2013 6:06 pm
John Malone’s portrait hangs in the boardroom of Liberty Media’s Colorado headquarters, and outside the window is a bronze eagle given to him by his wife. Mr Malone, Liberty’s chairman and America’s largest landowner, owns much of the land between the statue and the Rocky Mountains in the distance.
The cable pioneer and feng shui follower decorated the building on the 60-acre site in Englewood, near Denver, with South African mahogany to remind him of the interior of his 82-foot yacht, and styled the company logo after the drains on its deck.
It is not a setting in which a number two can easily escape from the shadow of the man who built TeleCommunications Inc (TCI) into America’s largest cable company, helped start channels from CNBC to Discovery, jousted with Rupert Murdoch and now oversees an empire stretching from Dutch cable operators to QVC’s shopping channel.
Yet a string of recent deals, in which Liberty Media spun off the Starz channel, took control of Sirius XM satellite radio, built a stake in Barnes & Noble and returned to cable distribution by buying 27 per cent of Charter Communications, has started to shine a light on Greg Maffei’s role as chief executive.
“The thing to understand about Greg is he’s ADD,” Mr Malone says. Liberty Media, too, could be said to suffer from attention deficit disorder. Mr Maffei says no unifying principle connects its diverse assets because “we’re usually way too opportunistic”.
Mr Maffei, who recently became chairman of Sirius, Starz and Live Nation, the concert promoter for such chart-topping acts as Rihanna and U2, identifies one constant theme amid Liberty’s shuffling: aggressive returns of capital to shareholders, designed to incur the minimum of corporation tax.
“It hasn’t been about building the empire or trying to build a bigger enterprise. It has been about trying to build shareholder value,” he says. “How many media companies have spun off as much as we have?” he asks.
In the 1980s, John Malone seized the opportunity that loose regulations offered cable to turn TCI into “an ungodly successful model”, Greg Maffei says, but his $54bn sale of TCI to AT&T in 1999 left interests in many channels and their parent companies that made little sense without “the big kahuna” at the centre, writes Andrew Edgecliffe-Johnson.
Mr Maffei points to four significant moves to make sense of the portfolio since he joined Liberty in 2006. .
First, it sold small stakes in “mediocre” investments such as On Command and Open TV; then it swapped its voting stock in News Corp for a controlling holding in DirecTV, which it subsequently spun off.
Third was a $530m rescue investment in Sirius, which feared bankruptcy in 2009 as car sales plunged. “We were lucky on timing, on structure and everything,” Mr Maffei says, before adding that Liberty’s bottom-of-the-market move was based on an analysis that Sirius’s liquidation value would exceed its investment.
Fourth, Liberty has bought back about 45 per cent of its stock since he joined, at an average price of below $40 compared with its $109.39 valuation on Wednesday night. That has driven up its net asset value dramatically.
The remaining holdings are scattered around several companies.
As well as Liberty Media, there is the newly spun-off Starz and Liberty Interactive, home to digital brands from Evite to Bodybuilding.com, which is split into two tracking stocks. Liberty Global, the non-US cable business, which has made headline-grabbing deals with Virgin Media and Ziggo in Europe, is run by Mike Fries.
The largest assets now held by Liberty represent a series of bets. At Sirius, which accounts for more than 70 per cent of Liberty Media’s value in analysts’ models, the question is how Liberty can extract the value created by its comeback.
Mr Maffei says a large dividend or buyback is “likely” now Liberty has control of Sirius, but offers few clues as regards timing.
Charter is a bet on America’s appetite for high-speed broadband, and on consolidation in the cable sector creating savings. At Live Nation, the concert business, Liberty sees new ticketing technology leading to a more efficient conversion of earnings to cash.
It could as easily cut its 27 per cent stake in Live Nation as add to it, however. “We’re Liberty. We never know whether we want the stock to go up or down,” he says. Across its portfolio, it might buy more if prices fall or sell if they rise.
The $2.6bn Charter deal used up the net cash Liberty was left with after the Starz split, but Mr Maffei sees up to $1bn of “non-core stuff” in its portfolio and says with cheap financing on offer it would love to borrow “as much as we could, prudently”.
Valuations for potential acquisition targets are more expensive than in 2009 but more international exposure remains an aspiration and Liberty has explored markets including Brazil, Turkey and Spain, he says.
Liberty Media, with a capitalisation of $13.3bn, trades below net asset value. The discount has narrowed but is not illogical because “there’s some risk we’ll do a stupid deal”, Mr Maffei says. “We’ve been lucky that some of the big ones have worked out and covered our sins.”
Asked whether Liberty might take a break from new deals to absorb its recent moves, he suggests the shark must keep swimming: “My gosh, Liberty without deals? What would that mean?” he laughs.
A former chief financial officer to Bill Gates and Larry Ellison, Mr Maffei is used to working for prominent figures. According to one adviser: “Greg’s a great investor. He understands opportunities and is very detail-oriented, but it’s John’s vision.”
“More normally, it’s me proposing – or the team and I proposing, more accurately – and John blessing, saying grace on it,” Mr Maffei says. “It’s not like John is always sitting back waiting to say yes or no, but he’s just got a breadth of interests.”
Now, he says, Mr Malone is stepping back a little to concentrate on just three boards: Liberty Media, Liberty Global and Discovery, where he holds a large personal stake. “John doesn’t want to be burdened by a lot of the day-to-day, but no major decision gets made without John buying in,” he says.
Mr Maffei, one of media’s highest-paid executives, could play an even larger role in the long term. Mr Malone, who holds 83.7 per cent of Liberty Media’s super-voting B shares, told CNBC last week his will dictates that his management teams will have the opportunity to buy his controlling stock after his death.
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