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 (NYSE:T).
Breakingviews editors break out the three steps:
Part one would be to beef up his sports properties. In his deal with Mr. Murdoch, Mr. Malone's Liberty Media (NASDAQ:LINTA) 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, finally, 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 (NYSE:DIS); and Verizon Communications (NYSE:VZ), 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.
There is a lot that could happen here and impact my portfolio. In addition to holding DirecTV, my portfolio also contains Liberty Media (I retained both tracking stocks) and Comcast (NASDAQ:CMCSA). All three have done well to date. And toss in CBS (NYSE:CBS) and I'm glad my portfolio took on several of those "old media" stocks a year or more ago.
You see, no one knows how all this media stuff will play out. Except it's safe to think we'll see a fair amount of buying and selling among the sector's players. Let's stay tuned.