A Playbook for DirecTV
Malone May Repeat Moves
Used to Build and Sell TCI;
A Bid for Cablevision Unit?
January 22, 2007; Page C10
John Malone secured a coup when he forced Rupert Murdoch to hand him control of DirecTV Group. But what will he do with the satellite broadcaster? Chances are he will repeat the game he played successfully when he built Tele-Communications Inc., or TCI, into a cable empire in the 1990s. He could start by offering to buy the sports channels owned by Cablevision Systems, whose controlling shareholder's attempt to take the media company private was stymied last week.
Mr. Malone's TCI playbook had three parts: create value by marrying distribution and exclusive programming; layer on debt to keep tax bills low; then find a suitor capable of providing a rich, tax-efficient exit. In TCI's case, this was AT&T.
How could Mr. Malone play this game with DirecTV? Part one would be to beef up his sports properties. In his deal with Mr. Murdoch, Mr. Malone's Liberty Media didn't just gain control of DirecTV; he also got three regional sports channels. But that's not enough to make an impact. Rainbow Media, the Cablevision subsidiary that owns the New York Knicks and Rangers and Madison Square Garden, would do the trick. Rainbow could cost $4 billion, estimates Credit Suisse.
Step two could be financial engineering. DirecTV already started the process. The deal saved $2 billion because it was structured as a tax-free asset swap. There could be more to come. DirecTV has a healthy balance sheet -- it could fund acquisitions or pay a special dividend of up to $9 billion, according to Bank of America.
And step three? Mr. Malone's history as a trader suggests he already has his eye on an exit. There are two natural buyers: Comcast, the cable operator that failed to acquire Walt Disney; and Verizon Communications, the phone company branching into television. If Mr. Malone stays true to form, don't be surprised if he structured any deal down the road as a tax-free swap, ending up with a boatload of Verizon or Comcast shares.
http://online.wsj.com/article/SB116942149026183127.html
Malone May Repeat Moves
Used to Build and Sell TCI;
A Bid for Cablevision Unit?
January 22, 2007; Page C10
John Malone secured a coup when he forced Rupert Murdoch to hand him control of DirecTV Group. But what will he do with the satellite broadcaster? Chances are he will repeat the game he played successfully when he built Tele-Communications Inc., or TCI, into a cable empire in the 1990s. He could start by offering to buy the sports channels owned by Cablevision Systems, whose controlling shareholder's attempt to take the media company private was stymied last week.
Mr. Malone's TCI playbook had three parts: create value by marrying distribution and exclusive programming; layer on debt to keep tax bills low; then find a suitor capable of providing a rich, tax-efficient exit. In TCI's case, this was AT&T.
How could Mr. Malone play this game with DirecTV? Part one would be to beef up his sports properties. In his deal with Mr. Murdoch, Mr. Malone's Liberty Media didn't just gain control of DirecTV; he also got three regional sports channels. But that's not enough to make an impact. Rainbow Media, the Cablevision subsidiary that owns the New York Knicks and Rangers and Madison Square Garden, would do the trick. Rainbow could cost $4 billion, estimates Credit Suisse.
Step two could be financial engineering. DirecTV already started the process. The deal saved $2 billion because it was structured as a tax-free asset swap. There could be more to come. DirecTV has a healthy balance sheet -- it could fund acquisitions or pay a special dividend of up to $9 billion, according to Bank of America.
And step three? Mr. Malone's history as a trader suggests he already has his eye on an exit. There are two natural buyers: Comcast, the cable operator that failed to acquire Walt Disney; and Verizon Communications, the phone company branching into television. If Mr. Malone stays true to form, don't be surprised if he structured any deal down the road as a tax-free swap, ending up with a boatload of Verizon or Comcast shares.
http://online.wsj.com/article/SB116942149026183127.html
