Profile: Liberty Media Corp / Liberty Interactive

Wikipedia entry:

Liberty Media began in 1991 as a spin-off of TCI, an American cable-television group. Peter Barton, hired by TCI’s Malone, served as president until retiring in April 1997 to start an investment firm and spend time with his family.

The company took over TCI assets considered to have little value, but Barton completed “a deal every ten days for six years” and made the company a big success. Liberty was merged back into TCI in the mid-1990s.

On March 13, 1998, Liberty Media Group and TCI Group announced the merger of Encore and STARZ! into a single company – Encore Media Group, owned by Liberty. Encore was taking advantage of the growth of digital cable, while TCI, which had previously owned twenty percent of Encore, was more interested in traditional cable.

Original Liberty Spin-off from TCI:

An interview with John Malone on TheCableCenter.org (2001)

MALONE: Yeah, if you remember Tryg, part of our original deal with AT&T was that Liberty would be an autonomously managed subsidiary of AT&T and as time went on, it became clear that Liberty’s direction was going to run into conflict from a regulatory point of view with AT&T’s direction and so it seemed to be the prudent thing to split the sheets and since the AT&T shareholders really had no financial interest in Liberty and Liberty shareholders had no financial interest in AT&T, it was pretty much a… once we ran into those problems that started to really mount, it made sense for both sides that they spin Liberty off to the Liberty tracking stock shareholders, which is what ultimately happened. So, Liberty is now autonomous. It is what it’s always been, it’s a collection of businesses and a portfolio of investment assets that we’re trying to grow and optimize. In particular, we’re very interested in the international cable television business. For one thing, it didn’t put us in conflict with AT&T to get into it and it seems that some of those markets are proving very interesting in terms of this triple play, this full technological implementation.

MYHREN: Video, voice, and data.

MALONE: Video, voice, and data. And particularly right now, the equity markets and the debt markets seem to be running away from these businesses, and so these businesses are seeing their ability to raise capital dry up and their stocks trade at record lows and so it’s a pretty good opportunity for Liberty to expand internationally. If we do close the transactions that we have announced, we will be at over 25 million subscribers outside the U.S., with lots of opportunity to grow. So we will have essentially become bigger outside than we ever were inside in terms of subscriber count, anyway.

History of dealmaking

From “The Writing Is on the Wall for HSN and John Malone” on Barrons.com

“Consider, for instance, the saga of Liberty’s stake in HSN (ticker: HSNI), parent of the TV shopping channel once called the Home Shopping Network. HSN was one of four companies last year spun out from IAC/InterActive (IACI), the Internet and retailing conglomerate run by Barry Diller. Malone ended up with about a 30% stake in HSN; he placed the holding in Liberty Media Interactive (LINTA), a tracking stock that among other things includes HSN rival QVC.

I raise all this because HSN shares have been on a tear of late, soaring from less than $1.50 a share at their nadir in December to more than $10 last week. During just the past week, the stock is up more than 25%. And for that you must give at least partial credit to Malone.

Malone had opposed Diller’s spinoff plan, taking particular issue with Diller’s decision not to use IAC’s two-tiered voting structure with the shares issued for the four spinoff companies, reducing Malone’s voting position in IAC’s spinouts. (Malone had more than 61% control of IAC, although under an ancient deal he had granted Diller a proxy to vote the shares.) As part of a settlement between the two moguls, Malone agreed not to boost his stake in HSN or the other spinouts by more than 5% — or cut his holdings by more than 10% — for a two-year period ending May 2010.

For the first year after the deal, Liberty did nothing. But last week, Liberty lifted its stake in HSN to 32.8%, buying 1,872,210 HSN shares at an average price of $4.63. Apparently determined not to reveal Malone’s interest in the stock too soon, Liberty bought the shares in what it described in its Securities and Exchange Commission filing as “a post-paid forward transaction,” which basically means a brokerage firm piled up the shares on Liberty’s behalf into a block Malone could buy and then disclose in one fell swoop. The move allowed Liberty to buy the extra shares at less than half the current price.

It has always seemed logical for Liberty to buy HSN and merge it with QVC; Maffei said as much on an earnings conference call in February. Under the IAC deal with Malone, Liberty can’t make an offer for another year. But the writing is on the wall: HSN seems destined to be owned by John Malone. And over the past few weeks, the stock’s rally suggests investors have figured it out.”

Write-ups

Liberty Media Corp.” – Boyar Intrinsic Value Research

Just One Stock: A Retail Powerhouse in the Cash Flow Bargain Bin by Yale Bock of Y H & C Investments
Liberty Interactive (LINTA) on SumZero.com (May 17, 2011)
History of successful dealmaking
DIRECTV (2007)
Liberty Capital rose almost 13% in the first three months of 2007. The company’s exchange of News Corp shares for DIRECTV shares provided another example of John Malone’s prowess at growing shareholder value through both capital allocation and minimization of tax liabilities. DIRECTV represents the large majority of our appraisal of Liberty Capital. Early in the quarter DIRECTV shares were much more discounted via Liberty Capital than through direct ownership, and consequently, we sold some shares of DIRECTV, replacing them with Liberty Capital. All-in, DIRECTV is the Fund’s second largest commitment. Liberty Interactive also had a strong quarter, gaining 10%. QVC, which comprises most of the value within Liberty Interactive, grew its business as we expected, and its U.S. margins were particularly strong.
–  1Q 2007 Longleaf Partners Letter to Shareholders
I think Edward Lampert makes an interesting point on the future of retail, that very much relates to the business model of LINTA;

EL: I think retail — I think it’s going to be great and it has been great for the American consumer. The question is it good for business? I think a lot of businesses will have profitless prosperity and we got to adopt and I think the companies like amazon, E-bay, they’ve made — they turned this into a big opportunity and we got to be able to compete with them not just Walmart and Target, et cetera.

Q: Does that mean you’ll go more towards this idea to have these stores become distribution centers and do more online?

EL: We’re really focused more working customer back and I think that’s where information and I think who owns the relationship with customers generally viewers, you know, that create as platform. And, you know, I remember when — I started in 1984. I don’t think CNBC existed then. Now this is an incredibly important source of news and information. So, I think, I think that, that a lot of companies like whether it’s Disney, IBM, et cetera that were recreated, something inherent in those companies that you can build on. And I’ve made investments in companies whether it’s an Autozone or Autonation or a sears where there’s something to build on. The question is how well do we execute.

DB: Going back to your retail point what’s changed dramatically by the Internet is distribution methods. What hasn’t changed is the valve brands. in fact, there’s a bigger differential now because if you crew, let’s say, and you can only buy J. Crew merchandise from J. Crew — we don’t have an ownership interest there – but the point is you’re in one -position. Penney and selling other people’s brands you’re in a different position because that person who controls the brand may choose to distribute in many different ways including over the Internet. Or Federated or Macy’s. Guys are buying brands. If you don’t have a brand and dependent on somebody else’s brand you’re — I see the same thing in media too. Content of a brand and distribution.

Eddie Lampert and David Bonderman on CNBC

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