MALONE MANEUVERING FOR LIBERTY SPIN-OFF

Tele-Communications Inc. CEO John Malone has a reputation for getting his own way. But even Malone is going the extra mile to ensure TCI shareholders approve the cabler’s proposed spin-off to them of Liberty Media.

This is, of course, the second time Malone has played this game: The first time he shed the programming arm, in 1991, he merged it back three years later and came out of the deal with a big personal profit.

This time around Malone has again ensured that TCI has an option to buy Liberty back in some time in the future. But he ran into complaints from shareholders about the price for such a buyback. Bowing to their pressure, Malone has quietly changed some of the terms of the spin-off relating to how TCI could buy back Liberty stock in the future.

Malone needs stockholders’ approval of the spin-off. The new Liberty stock they would receive would amount to a promising avenue for fund-raising for Malone. TCI will retain control of Liberty and will be able to use the new Liberty stock to raise money for continued growth. As things stand now, TCI has little flexibility to raise money on its own – it has $10 billion of debt on its balance sheet.

And while major institutional shareholders say there is no reason the spin-off should be rejected, the vote is not a sure thing: Malone and TCI chairman Bob Magness effectively control the cabler through their ownership of 73% of the heavy-voting B class stock, but holders of A class shares have to approve the sale by a two-thirds majority in a separate vote. And Malone and Magness have very few A class shares.

That means institutional and individual investors who own those shares hold the key to the spin-off. Sources say TCI is concerned about resistance from some investors toward the “targeted stock” concept used in the Liberty spin-off.

Not surprisingly, when analysts and money managers gathered in Denver last month to meet with TCI execs, TCI was sensitive to objections raised to the terms of an option TCI will retain to buy back the Liberty stock. One of the people questioning the issue was Gordon Crawford, representing TCI’s biggest institutional shareholder, Capital Group.

As originally outlined in TCI’s SEC filing, TCI would be able to buy back Liberty stock any time in the future for Liberty’s market price plus an undefined percentage, thought to be 15%. That meant if Liberty’s stock price was trading low relative to its assets for any reason, shareholders would lose out in a buyback.

After the meeting TCI moved quickly to change the terms. TCI treasurer Barney Schotters confirmed that in response “to concerns” from shareholders TCI had changed the provision so that two outside firms would have to appraise the value of Liberty stock to come up with a price for any buyback.

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