The John Malone Complex – A Study in Financial Brilliance

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This is an excellent white paper on John Malone by Denali Investors (a great value oriented hedge fund, run by Kevin Byun). Also see Cable Cowboy: John Malone and the Rise of the Modern Cable BusinessThe Billionaire Shell Game: How Cable Baron John Malone and Assorted Corporate Titans Invented a Future Nobody Wanted, and The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success

The John Malone Complex A Study in Financial Brilliance below

¡ A Brief History
¡ Creating Liberty Media – 1991
¡ Alphabet Soup
¡ Strategy
¡ Chronology
¡ Entity Summary
¡ LINTA/LVNTA Spinoff – 2012
¡ Four-Way Spinoff – 2014
¡ Some History
¡ References

Hiding in Plain Sight

Due to only perceived complexity, most investors are unaware of one of the greatest owner/operator/allocators of this time
¡ These opportunities are hiding in plain sight, if one is simply paying attention
¡ Yet I have never seen consolidated summary or analysis across the Malone entities, so I decided to do it myself

Lowest Paid, Best Performing CEO
During the preceding 15 years, Malone had enjoyed a reputation of being one the lowest-paid, best performing CEOs in America.

For more than 15 years of running TCI, what drove Malone was a determination to create the biggest and most cash-efficient cable operator in the countryc Yet, for all this, his stake was puny: a tiny fraction of 1% in 1991.

It was making Bob [Magness] very rich. And Bob wasnft reciprocating. And that was just Bobc Thatfs what created Libertyc And it worked.h – Malone (Note: Magness was a father figure to Malone and there was no ill will)

Government Impetus
? “Based on talks with his attorneys as well as his cable colleagues, Malone suspected that government regulators would try to force him to split TCI in two – a distribution company, owning all of TCI’s cable systems, and a content company, owning interests in cable channels. So Malone decided to do it for them.”
? “In early 1991, he set up plans to form a new company, Liberty Media, and planned to stock it with more than $600 million worth of assets from TCI, roughly half the value in cable systems and the other half in programming stakes, mostly minority interests in small and large channels.”

Liberty Media returned 15x the initial
investment in two years
Shareholders received rights that entitled them to exchange some of their TCI stock for shares in the new company.
Liberty was issuing a maximum of only 2.1m shares. TCI had 415m shares…

Right received for every 200 TCI shares. Each right + 16 shares of TCI (at $16) = 1 share of Liberty Media! = $256 per share…
Liberty showed a pro forma loss.
Another twist: Any common not sold in the rights offering would be replaced by preferred stock owned by TCI, i.e. a backstop to the deal.
The Bottom Line: The fewer shareholders that participated in the Liberty offering, the more leveraged the upside potential for Libertyfs stock.

Full PDF below


The Malone Complex by Denali Investors

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