TCI STOCK: DEJA VU

Latest spinoff to highlight value of cable ops

NEW YORK — Never one to shy away from issuing new classes of stock, Tele-Communications Inc. has yet another stock offering aimed at Wall Street. But this time the stock — reflecting TCI’s investments in telephony, the Internet, overseas cable and a few smaller businesses — may test the patience of investors, analysts say.

Organized like TCI programming division Liberty Media, which has its own stock, the new unnamed company will own TCI’s 30% interest in the Sprint Spectrum wireless telephony venture, 31% interest in Teleport Communications Group, the 81% stake in TCI Intl. and 48% of Internet partnership At Home, as well as its wholly owned United Video Satellite Group.

Wall Street analysts say the assets are worth roughly $5 billion-$7 billion, depending on market conditions. TCI chairman John Malone estimated last week that the new company’s assets are about one-quarter of TCI — or about $6.5 billion, given TCI’s current market worth of $11 billion and its $14.5 billion debt load. TCI stock closed Friday down 18¢, to $14.12.

TCI’s latest plan is a revision of several previously announced spinoffs: The company was going to do an initial public offering of a new form of telephony stock, and it was going to do a complete spinoff of TCI Intl. But an IRS ruling blocked the TCI Intl. spinoff and the telephony stock offering has been widened to include the international businesses as well as a few others.

By consolidating all these interests into one company with its own balance sheet and stock, TCI will better highlight the value of its core cable operations — just as it did when it spun off its programming businesses through Liberty Media.

“Putting them under one pile has proved very difficult and complex,” TCI’s senior VP for finance Barney Schotters said. Schotters, along with TCI chief financial officer Brendan Clouston, will be responsible for overseeing the new division.

Most of the new businesses require plenty of capital, so the spinoff may help reduce the pressure on TCI’s balance sheet. Schotters said the new company likely would raise debt on its own.

But the question is whether investors will go for the new stock. TCI shareholders won’t automatically get the new stock issue, unlike the recent spinoffs of Liberty Media or TCI Satellite Entertainment. Instead, TCI shareholders will have to exchange some or all of their existing holdings to get stock in the new offering.

That ensures shareholders don’t dump a stock they don’t want as soon as it starts trading, but it also means shareholders simply could ignore the offer. TCI plans to market the offering to highlight the value.

Schotters said Friday the businesses would share the common characteristic of a technology flavor. But the investments vary — the Sprint venture is unproven start-up business, while Teleport is a fast-growing telephone business using more traditional technology. The At Home Internet business also has yet to prove itself, while the international businesses largely are investments in overseas cable businesses.

The final makeup of the new company still is unclear. Malone told analysts the cabler’s 51% stake in the Starz pay movie channel would be included, for instance, but Schotters said Friday, “Our current thinking is that Starz will remain with (TCI).” Additionally, Merrill Lynch analyst Jessica Reif predicts TCI will put its recently acquired Kearns Tribune newspapers into the new company.

Some on Wall Street are doubtful about investor reaction. “It’s kind of a strange mix of assets. Investors who may want to speculate on some (part) of this may not like the others,” said Furman Selz analyst Fred Moran, who believes the new class of stock won’t be valued as highly as it could.

“It’s clearly no worse than where (TCI shareholders) are starting from. It may be beneficial, but how beneficial is very uncertain,” said Lehman Bros. analyst Larry Petrella, although he added that it would have been better if TCI had simply sold some of the assets — particularly the Sprint and Teleport investments.

But Malone’s long-standing unwillingness to sell assets if it means paying taxes stands in the way of such a move, although Schotters said Friday a reduction in capital-gains taxes — part of a budget deal negotiated Friday by the Clinton administration and senior Republicans — “may impact what you’re going to do,” although TCI would wait until all the details were known before responding.

Schotters added that investor interest in the new company would translate to its pricing. “People will either like it and exchange for it, or they won’t,” he said.

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