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Malone Takes Stab at Hollywood

The cable titan's Liberty Media may be the leading bidder for assets of Vivendi Universal.

June 23, 2003|Sallie Hofmeister | Times Staff Writer

Over the years, cable titan John Malone has invested in media properties of all stripes. His Liberty Media Corp. has held interests in radio stations, Spanish-language television, satellite TV, cable systems, cable programming, postproduction studios, Internet companies and new technologies.

He has typically steered clear of Hollywood, however, turned off by the unpredictable returns of the movie business.

That is, until now.

Malone is emerging as a front-runner in the bidding contest for Vivendi Universal's entertainment assets, according to people close to the situation, including some rival bidders. Initial offers are due today for the assets, which include cable channels, theme parks, the world's largest music operation and the legendary television and movie studio built by Hollywood mogul Lew Wasserman.

Malone is still not enamored of Hollywood. But after a decade-long media consolidation, there is little of substance left to buy, and Malone needs to get bigger to keep from becoming further marginalized by the giants that tower over Liberty and dominate the business, analysts say.

Though Liberty's portfolio is valued on Wall Street at more than $30 billion, it controls and operates only one major asset, worth roughly $5 billion -- the Starz Encore movie channels. Most of its other holdings are minority stakes in companies including News Corp., AOL Time Warner Inc., QVC, Discovery Communications and Barry Diller's USA Interactive, which is changing its name today to InterActiveCorp.

Malone "wants back in the game and realizes there are not a lot of assets of any importance to buy," said one person close to the Denver entrepreneur.

Through Liberty, Malone has the financial wherewithal to do a deal without outside investors. Wall Street sources say that gives him an advantage over two of the five rival bidders: the investment groups led by billionaire Marvin Davis and Seagram Co. heir Edgar Bronfman Jr.

The other three bidders -- Metro-Goldwyn-Mayer, Viacom Inc. and General Electric Co.'s NBC -- also are handicapped because they either want only a few of the assets, are halfhearted in their offers or have questionable financial strength, these sources say.

"Liberty has the strongest balance sheet in the media industry," said Derek Baine, an analyst at Kagan World Media in Carmel.

Sources say Malone is making a cash bid of as much as $14 billion for Universal's entertainment assets, except Universal Music Group, which the French are looking to keep.

Besides money, Malone brings a reputation as a media maverick and one of the most astute deal makers of his time, which is important because the financially ailing French conglomerate would like to retain an equity stake in the Universal assets. Selling at a time when many media properties are trading at relative lows, Vivendi is hoping an eventual appreciation in value will compensate for what is essentially a distress sale.

Buying the Universal assets, however, would hardly establish Liberty as an A-list player.

Liberty would continue to lack a broadcast network, cable systems or a satellite outlet that are necessary to wield negotiating power in the big leagues. And Liberty's operating assets would be dwarfed by Comcast Corp., Viacom and Walt Disney Co.

That's why the Universal deal is seen by many as Stage 1.

"This is the first step in turning Liberty into an operating company," Baine said. "He could use his balance sheet to make other acquisitions."

Among Malone's long-term plans is to gain operational control of other assets within the Liberty fold, sources say. Those could include Court TV, its 50-50 joint venture with AOL Time Warner, or Discovery Communications, the powerful cable programmer co-owned with Advance/Newhouse and Cox Communications Inc.

Owning a stable of cable channels is desirable because of the cost savings from eliminating redundancies in marketing, sales and back office operations. It also provides leverage in negotiating with cable operators.

Given the assets in his portfolio, Malone might be able to work any number of trades with his partners in exchange for operating control. Cox, for instance, has said it would consider selling its 25% stake in Discovery if it could swap for another asset such as cable systems. Malone could also offer his partners stock in Liberty in exchange for their shares in the channels, sources close to him say.

"Liberty has also hinted at a deal with DreamWorks that could save on overhead and bring other economies of scale," Baine said.

Under one such scenario, Malone would merge Universal and DreamWorks SKG and draw on DreamWorks partner Jeffrey Katzenberg to run the new operation. DreamWorks, however, has dismissed such speculation.

Liberty's bid underscores how much the industry and Malone's own power base has changed in recent years.

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