When many investors think about John Malone, they think about the man behind Liberty Media (LMCA), its spin-off from Starz, and its quest to take a controlling interest in Sirius XM (SIRI). While all of that is true, John Malone is much more than Liberty Media.
Have you ever heard of Liberty Global (LBTYA)? Thanks to a reader from Belgium, I was alerted that Liberty Global just inititated a $2.56 billion tender offer for all remaining shares of Telenet (TNET.BR), a company that offers television, Internet and phone services. While I should have seen it earlier, I had to much tunnel vision in the last few days.
It seems that John Malone, in one way or another is throwing around billions today. The Telenet deal could offer yet another path that Liberty Media could take with Sirius XM, and even offers a hint at what the preferred debt to EBITDA ration of a Malone controlled company may be.
Liberty first gained a controlling interest in Telenet in 2007. Since then, the company has levered, conducted share buybacks and essentially gone down a path that is quite similar to that of the Liberty blueprint with Sirius XM. With Telenet, the icing on the cake for Liberty was to essentially buy out all of the shares at about a 14% premium. The strategy with Sirius XM is thought to culminate in a tax friendly Reverse Morris Trust, an avenue not available in Europe.
In August of this year Telenet took on additional debt to do a share buyback. Ultimately Telenet was levered to a ratio of 4.5 to 1, greater that the 4 to 1 that I recently speculated in an article titled Why Liberty Media Will Be Patient With Sirius.
There is a lot to think about and consider here. The biggest news for many readers may be that John Malone has a lot more irons in the fire than just Liberty Media. If you thought that Malone was getting strapped for cash, think again! While he can not simply take cash from one company and apply it to another, he can spin and merge his way into virtually any position that benefits Liberty the best.
The Sirius XM drama has quite a ways to go before it pans out. While a Reverse Morris Trust seems the most logical path at the moment, a total buyout similar to that which is happening to Telenet can not be ruled out. Two years is a long way down the road, and Sirius XM could have a lot to offer.
Malone has spoken about possible globalization of Sirius XM, at least through the Internet platform. When you look at Liberty Global you can see the synergies. The first step is getting control. The second step is keeping control. The third step could be anything from a Reverse Morris Trust, to a long term hold by Liberty, to an ultimate buyout.
Stay tuned, and read up on the Liberty and Telenet deal for possible insights. If that is not enough reading, take a look at how the name John Malone is being tied to a possible acquisition of a piece of the AEG empire for a potential $6 billion!
Additional disclosure: I have no position in Liberty Global or Telenet