The ocean is dimly visible behind John Malone’s table in a private dining room at the Girandole restaurant, 41 floors above the streets of Tokyo’s frenetic Shinjuku district. The billionaire cable television pioneer admires the Tokyo skyline. “Look at the potential out there - this market is barely penetrated,” he says. “We want to be the dominant cable network in Japan, applying all the lessons we’ve learned over 35 years.”
The Girandole is at the top of the elegant Park Hyatt hotel and parts of it - the dark furniture, the demure staff - seem vaguely familiar, almost like a film set. That’s because it has been one. Sofia Coppola filmed Lost in Translation here two years ago and like Bill Murray, the film’s jet-lagged star, Malone seems to find Tokyo alien territory. He rarely travels outside the US and delegates the management of his overseas businesses to a close-knit team of executives.
Square of jaw and shoulder, he towers over the Hyatt staff, who bow as he passes. Removing his jacket for breakfast, he raises an eyebrow at the busy Japanese scripts on the menu. As media magnates go, he has none of the menace of Disney’s Michael Eisner, nor the bonhomie of Time Warner’s Dick Parsons. He is strictly business.
Malone is in Tokyo for the stock market debut of Jupiter Telecommunications, a Japanese outpost in his vast media empire. His $40bn cable television and media investment company, the Denver-based Liberty Media, controls some of the globe’s biggest media brands, including QVC, the world’s largest home-shopping network. It also owns 50 per cent of the Discovery channel and has influential stakes in Time Warner, Viacom and Rupert Murdoch’s News Corp.
Like Murdoch, 64-year-old Malone is often called one of the greatest dealmakers of his generation. He built Liberty from a near-bankrupt cable company, Tele-Communications, Inc (TCI), by buying stakes in television companies in return for distributing their programmes on his cable network.
He sold off the group’s core cable infrastructure business to AT&T in 1999 for $54bn, a move that in effect ceded Liberty’s dominance of the cable sector and left it a loosely held collection of television channels and investments.
But his greatest deal may be yet to come. Last autumn, he stunned onlookers by increasing his voting stake in News Corp to almost 19 per cent, making Liberty the biggest outside investor in the company that Rupert Murdoch and his family have always controlled. Did Malone want to take over News Corp, analysts wondered, and create one of the world’s biggest media companies?
Murdoch decided not to take any chances: he imposed a “poison pill” share plan to prevent Malone (a man he often calls his “good friend”) snatching control of his company. The Liberty chairman responded by offering to exchange his News Corp stake for some of Murdoch’s hard-won assets such as the Fox movie channel or National Geographic TV, plus a large chunk of cash. The drama has been captivating. One Liberty insider compares it to “three-dimensional chess played by equally matched players of comparable power”. It all seems a distant confrontation in the sedate hush of the Girandole, but it is clearly on Malone’s mind.
Signalling for more coffee, he denies his News Corp move is an attempt to threaten Rupert Murdoch and the two sons Murdoch has been grooming to take over the business: Lachlan, 33, the deputy chief operating officer, and James, 32, chief executive of the pay-TV affiliate British Sky Broadcasting. “I think the boys are terrific,” he says. “They split Rupert’s gene pool. Lachlan is the risk-taker and James is more cerebral.”
So which one will succeed the 74-year-old patriarch? “I don’t think that’s going to happen any time soon. Rupert called me after he discovered he had prostate cancer and said that the boys weren’t ready to take over the company, so he would have to last at least 10 years. Then he said he was going to drink this green stuff some doctor had recommended, and live on, which he has.”
He pauses briefly to order breakfast. He might like Japan as a television market, but Malone’s appetite for the Orient does not extend to his stomach. Ignoring the pickled vegetables, tofu and miso soup on offer, he opts for the dun-coloured Bircher muesli “with lots of coffee”.
Order taken, he explains how his News Corp move fits into his general philosophy of business. “In this industry, I believe very firmly that if you want to build long-term assets you have to have a hard core of people willing to commit for the long term. That’s why family control or long-term investors are so important in the media industry.” Malone insists he is not seeking creeping control at News Corp, and describes himself as a “huge supporter of Rupert and his family…I own 32 per cent of Liberty. If you’re in the 30s - as Rupert knows - you should be safe.”
The implication is that Rupert could increase his voting stake from around 29 per cent by offering to buy Liberty’s voting shares. “I would not rule out a cash-rich transaction,” says Malone. “But my dream outcome is that Rupert has the votes and my shareholders have [non-voting ordinary] News Corp shares.” The strategy may be clear to Malone, who has a degree in electrical engineering from Yale and a doctorate in operations research from Johns Hopkins, but some of the proposed deals are as mixed up as the Girandole’s breakfast specialities, notably “waffles with cottage cheese and berries” and “dried fruits and garden greens”.
Of all the permutations, one outcome is vital to Malone - minimising tax. “It’s not that I hate tax. But my job is to maximise value for shareholders, myself included. If you look at TCI, the majority of the $35bn gain when we sold to AT&T was given to TCI shareholders tax free in the form of stock. They could choose to hold or sell. Those who were smart enough got out tax free. For me it was a disaster because I didn’t.” With a fortune estimated at $2bn, the disaster does not seem that painful.
So what drives him? He does not need the money. He has a ranch in Colorado, a seaside estate in Maine - where his 80ft yacht Liberty is moored - and a close-knit family. He married Leslie, a college sweetheart, more than 40 years ago.
He just loves deals. “I’m a growth maven. I want to prove that tightly-held companies can be rewarded for demonstrating growth rather than grinding out sales and making shareholders happy with small dividends. Even when I’m on the wrong side of the grass, my estate plan will place my stake in foundation holdings, so it won’t lead to loss of control.”
Malone grew up in Connecticut, where he made pocket money fixing and reselling radios brought home by his father, an engineer at General Electric. But his talent for deal-making, or “media Darwinism” as he calls it, came from learning on the job under Bob Magness, a former Oklahoman cattle rancher and the original founder of TCI, who hired Malone in 1972 and made him chief executive a year later. “Most of the skills in financial engineering came from the school of hard knocks. Bob Magness taught me that. He could read a balance sheet faster than anyone I’ve ever known and really developed the principle of bulkhead financing.” Bulkhead financing? “Yes, it means that each business you’re in has to be self-financing. That way the banks never have you by the throat.”
To him, failed companies such as Enron or WorldCom ignored those strictures. Other groups simply failed to deliver on ambitious mergers, among them one of his largest shareholdings: Time Warner, whose ill-fated merger with AOL in 2000 was the biggest corporate deal in history.
Malone describes Time Warner as “a silo operation”, where there is an alleged lack of co-operation between its standalone divisions - each led by executives suspicious of AOL. “It was like the Magna Carta. The king had relatively little power; it was all controlled by the barons. That’s why the merger failed. They could not deliver on the promise of getting AOL to drive content. It’s been uninspired.”
Wall Street applauded Time Warner and Comcast’s recent joint bid for Adelphia, the US cable business. But Malone thinks the applause may be premature. In comments certain to irritate Time Warner, he says: “Adelphia does not increase their size really because they are giving away some of the best assets to Comcast. They have to be more aggressive and think about growth.”
In his own company, Malone leaves the growth strategy to his managers. “I say to them, ‘Tell us when to send the cheques.’ I see them as field marshals. Winston Churchill did not run the battles; he had Montgomery. I have Montgomerys too.”
As Malone gulps one last coffee before leaving for Narita airport, I ask him why he has such a menacing reputation, once being dubbed the industry’s Darth Vader.
He sets the record straight. “The Darth Vader tag came from Al Gore. He called me that on the Senate floor after I developed a scrambling technology to fight satellite pirates in Tennessee - his state. He called me that because he thought I had created a ‘death star’. Later, when we were offering content services all over the place, he wrote saying, ‘Perhaps I should call you Luke Skywalker.’ That suits me.”
Girandole, Park Hyatt, Shinjuku, Tokyo
2 x Bircher muesli
1 x sliced mango
1 x half papaya
1 x freshly squeezed orange juice
2 x freshly brewed coffee
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